UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
Incorporated pursuant to the Laws of Delaware State
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Internal Revenue Service - Employer Identification No. 95-2080059
1901 Harrison Street, Oakland, California 94612
(510) 446-3420
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of the Registrant's common stock
held by nonaffiliates of the Registrant on February 28, 2001, was
$8,693,877,867. The number of shares outstanding of the Registrant's common
stock on February 28, 2001, was 158,502,787 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated March 12, 2001, furnished to stockholders in
connection with registrant's Annual Meeting of Stockholders, is incorporated by
reference into Part III.
GOLDEN WEST FINANCIAL CORPORATION
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
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PART I................................................................................................ 1
Item 1. Business................................................................................ 1
Registrant................................................................................. 1
Forward Looking Statements................................................................. 1
Regulatory Framework....................................................................... 2
Office Structure........................................................................... 2
Acquisitions/Divestitures.................................................................. 2
Operations................................................................................. 2
Deposit Activities......................................................................... 3
Borrowings................................................................................. 6
Loans Receivable and Mortgage-Backed Securities............................................ 7
Mortgage Servicing Rights.................................................................. 19
Asset Quality.............................................................................. 19
Investment Activities...................................................................... 24
Goodwill................................................................................... 25
Stockholders' Equity....................................................................... 25
New Accounting Pronouncements.............................................................. 26
Earnings Per Share......................................................................... 26
Extraordinary Item......................................................................... 26
Yield on Interest-Earning Assets/Cost of Funds............................................. 27
Competition and Other Matters.............................................................. 28
Thrift Industry............................................................................ 29
Regulation................................................................................. 29
Employee Relations......................................................................... 37
Item 2. Properties.............................................................................. 37
Item 3. Legal Proceedings....................................................................... 38
Item 4. Submission of Matters to a Vote of Security Holders..................................... 38
PART II............................................................................................... 39
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters............ 39
Market Prices of Stock..................................................................... 39
Per Share Cash Dividends Data.............................................................. 39
Stockholders............................................................................... 40
Item 6. Selected Financial Data................................................................. 40
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations... 44
Financial Condition........................................................................ 45
Results of Operations...................................................................... 60
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............................. 66
Item 8. Financial Statements and Supplementary Data............................................. 66
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 66
PART III ........................................................................................... 67
Item 10. Directors and Executive Officers of the Registrant..................................... 67
Item 11. Executive Compensation................................................................. 68
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 68
Item 13. Certain Relationships and Related Transactions......................................... 68
PART IV ........................................................................................... 69
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 69
PART I
ITEM 1. BUSINESS
Registrant
Golden West Financial Corporation (Golden West or Company) is a savings and
loan holding company, the principal business of which is the operation of a
savings bank business through its wholly owned savings bank subsidiary, World
Savings Bank, FSB (WSB). Golden West also has two other subsidiaries, Atlas
Advisers, Inc. and Atlas Securities, Inc. These two companies were formed to
provide services to Atlas Assets, Inc., a series open-end registered investment
company sponsored by the Company. Atlas Advisers, Inc., is a registered
investment adviser and the investment manager of Atlas Assets, Inc.'s fourteen
portfolios (the Atlas Funds). Atlas Securities, Inc., is a registered
broker-dealer and the sole distributor of Atlas Fund shares. The Company was
incorporated in 1959 and has its headquarters in Oakland, California. References
herein to the Company or Golden West mean Golden West and its subsidiaries on a
consolidated basis, unless the context requires otherwise.
During the fourth quarter of 2000, World Savings Bank, a State Savings Bank
(WSSB), a wholly owned subsidiary of Golden West, received approval to change
from a Texas state savings bank regulated by the FDIC to a federally chartered
savings bank regulated by the OTS. WSSB's new name as a result of this change is
World Savings Bank, FSB Texas (WTX). On December 1, 2000, Golden West
contributed WTX to WSB and WTX became a wholly owned subsidiary of WSB. In
addition, on December 31, 2000, World Savings and Loan Association, formally a
wholly owned subsidiary of Golden West, was merged into WSB.
WSB is a federally chartered savings bank, with deposits insured by the
Federal Deposit Insurance Corporation (FDIC). The FDIC administers two separate
deposit insurance funds, the Bank Insurance Fund (BIF) and the Savings
Association Insurance Fund (SAIF). The BIF is a deposit insurance fund for
commercial banks, federally chartered banks, and some state chartered banks. The
SAIF is a deposit insurance fund for most savings associations. WSB is a member
of the BIF, but a portion of WSB's deposits are insured through the SAIF. WTX's
deposits are also insured by the FDIC and WTX is a member of the BIF.
WSB's home office is in Oakland, California. As of December 31, 2000 and
1999, WSB had assets of $55.7 billion and $42.0 billion, respectively. For the
years ended December 31, 2000, 1999 and 1998, WSB had net income of $540
million, $479 million and $432 million, respectively.
Forward Looking Statements
This report contains certain forward-looking statements, which are not
historical facts and pertain to future operating results of the Company. Such
statements are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward looking statements are
inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond the Company's control.
In addition, these forward-looking statements are subject to change. Actual
results may differ materially from the results discussed in these
forward-looking statements for the reasons, among others, discussed under the
heading "Asset/Liability Management" in the Management's Discussion and Analysis
of Financial Condition and Results of Operations, herein under Item 7.
Regulatory Framework
The Company is a savings and loan holding company within the meaning of the
Home Owners' Loan Act (HOLA), and is subject to the regulation, examination,
supervision, and reporting requirements of HOLA. WSB is a member of the Federal
Home Loan Bank (FHLB) system and owns stock in the FHLB of San Francisco. WTX is
a member of the FHLB system and owns stock in the FHLB of Dallas. WSB's and
WTX's savings accounts are insured by the FDIC up to the maximum amounts
provided by law. The Company, WSB, and WTX are subject to extensive examination,
supervision, and regulation by the Office of Thrift Supervision (OTS) and the
FDIC. Applicable regulations govern, among other things, lending and investment
powers, the types of savings accounts that can be offered, the types of
businesses that can be engaged in, capital requirements, and the payment of
dividends. WSB and WTX are also subject to regulations of the Board of Governors
of the Federal Reserve System (Federal Reserve Board) with respect to reserve
requirements and certain other matters (see Regulation).
Office Structure
As of December 31, 2000, the Company operated 120 savings branch offices in
California, 37 in Florida, 36 in Colorado, 22 in Texas, 15 in Arizona, 11 in New
Jersey, eight in Kansas, and four in Illinois. The Company also operates 278
loan origination offices of which 234 are located in the states listed above.
The remaining 44 loan origination offices are located in Connecticut, Delaware,
Georgia, Idaho, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Minnesota,
Missouri, Nevada, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, Rhode
Island, South Dakota, Tennessee, Utah, Virginia, Washington, and Wisconsin. Of
the 278 loan offices, 19 are fully-staffed offices that are located in the same
premises as savings branch offices and 117 others are savings branch offices
that have a single loan officer on site. The remaining loan origination offices
are located in facilities that are separate from savings branch offices.
Acquisitions/Divestitures
During 1999, the Company sold three branches in Colorado and one branch in
Kansas with a total of $149 million in deposits. During 1998, the Company sold
one branch in Colorado with a total of $36 million in deposits. The foregoing
divestitures are not material to the financial position or net earnings of
Golden West and pro forma information is not deemed necessary.
Operations
The principal business of the Company, through WSB and WTX, is attracting
funds, primarily in the form of savings deposits acquired from the general
public, and investing those funds principally in loans secured by deeds of trust
or mortgages on residential and other real estate, and mortgage-backed
securities (MBS). Funds for the WSB's and WTX's operations are also provided
through earnings; loan repayments; sales of loans; wholesale certificates of
deposit; borrowings from the Federal Home Loan Bank system; debt collateralized
by mortgages, MBS, or other securities; and the issuance of medium-term notes.
In addition, WSB has a number of other alternatives available to provide
liquidity or finance operations. These include borrowings from public offerings
of debt, issuances of commercial paper, and borrowings from commercial banks.
Furthermore, under certain limited conditions, WSB may borrow from the Federal
Reserve Bank of San Francisco and WTX may borrow from the Federal Reserve Bank
of Dallas to meet short-term cash needs. The availability of these funds will
vary depending on policies of the FHLB of San Francisco, the Federal Reserve
Bank of San Francisco, and the Federal Reserve Board.
The principal sources of funds for the holding company, Golden West, are
dividends from WSB, interest on investments, and the proceeds from the issuance
of debt and equity securities. Various statutory and regulatory restrictions and
tax considerations limit the amount of dividends WSB can pay. The principal
liquidity needs of Golden West are for payment of interest and principal on
subordinated debt securities, capital contributions to WSB, dividends to
stockholders, the purchase of Company stock, and general and administrative
expenses.
Deposit Activities
Deposit flows are affected by changes in general economic conditions,
changes in prevailing interest rates, and competition among depository
institutions and other investment alternatives. The Company currently offers a
number of alternatives for depositors, including passbook, checking, and money
market deposit accounts from which funds may be withdrawn at any time without
penalty, and certificate accounts with varying maturities ranging up to seven
years. All types of accounts presently offered by the Company have rates that
are set by the Company, consistent with prevailing interest rates. The Company's
certificate accounts are issued in non-negotiable form through its branch
offices. The Company uses government securities dealers to sell certificates of
deposit (CDs) to institutional investors. These are referred to in this document
as "wholesale CDs." The Company's deposit balance at December 31, 2000 and 1999
included $185 million and $600 million, respectively, of these wholesale CDs.
There were no wholesale CDs outstanding at December 31, 1998.
Retail deposits increased $2.7 billion during 2000, including interest
credited of $1.3 billion, compared to an increase of $896 million during 1999,
including interest credited of $1.1 billion, and an increase of $2.6 billion,
including interest credited of $1.1 billion during 1998. Retail deposits
increased in 2000 primarily due to the implementation of marketing campaigns
that took advantage of the favorable savings environment, especially in the
second half of the year. Retail deposits increased in 1999 as the Company
concentrated efforts on building the loyalty of existing depositors. Retail
deposits increased during 1998 primarily due to ongoing marketing efforts as
well as active promotions of market rate transaction accounts. At December 31,
2000, 1999, and 1998, transaction accounts (which include checking, passbook,
and money market accounts) represented 24%, 35%, and 35%, respectively, of the
total balance of deposits.
The table on the following page summarizes the Company's deposits by
original term to maturity at December 31.
TABLE 1
Deposits
by Original Term to Maturity
(Dollars in Thousands)
2000 1999 1998 1997 1996
-------------- -------------- -------------- -------------- --------------
Interest-bearing checking accounts. . $ 74,598 $ 128,677 $ 102,874 $ 85,343 $ 318,422
Interest-bearing checking accounts
swept into money market deposit
accounts . . . . . . . . . . . . . . 3,059,928 3,206,240 2,706,811 1,386,398 488,361
Passbook accounts . . . . . . . . . . 451,228 484,132 514,265 528,727 550,075
Money market deposit accounts. . . . . 3,534,786 5,869,963 5,825,450 2,774,336 1,077,321
Term certificate accounts with
original maturities of:
4 weeks to 1 year . . . . . . . . 12,325,768 8,554,573 5,893,772 8,996,965 10,144,102
1 to 2 years. . . . . . . . . . . . 7,275,219 5,947,712 7,717,692 5,750,387 5,012,735
2 to 3 years. . . . . . . . . . . 1,367,147 1,349,180 1,417,606 1,478,756 1,587,068
3 to 4 years. . . . . . . . . . . 453,974 368,540 368,615 431,400 565,997
4 years and over . . . . . . . . . 675,120 582,275 1,150,056 1,440,434 1,993,983
Retail jumbo CDs . . . . . . . . . . . 644,962 623,286 521,478 711,010 360,441
Wholesale CDs. . . . . . . . . . . . . 185,000 600,000 -0- 525,305 -0-
All other . . . . . . . . . . . . . . 189 332 476 656 1,429
-------------- -------------- -------------- -------------- --------------
Total deposits. . . . . . . . . . . . $30,047,919 $27,714,910 $26,219,095 $24,109,717 $22,099,934
============== ============== ============== ============== ==============
The table below sets forth the Company's deposits by interest rate at
December 31.
TABLE 2
Deposits by Interest Rate
(Dollars in Thousands)
2000 1999
---------------- -----------------
0.00% -- 4.00% . . . . . . $ 4,107,186 $ 4,988,608
4.01% -- 6.00% . . . . . . 9,314,068 22,399,910
6.01% -- 8.00% . . . . . . 16,617,334 316,903
8.01% -- 10.00% . . . . . . -0- 93
10.01% -- 12.00% . . . . . . 9,331 9,396
---------------- -----------------
$30,047,919 $27,714,910
================ =================
At December 31, the weighted average cost of deposits was 5.52% (2000) and
4.69% (1999).
The table below shows the maturities of deposits at December 31, 2000 by
interest rate.
TABLE 3
Deposit Maturities
by Interest Rate
(Dollars in Thousands)
2005 and
2001(a) 2002 2003 2004 thereafter Total
----------------- ---------------- -------------- -------------- --------------- -----------------
0.00% -- 4.00% $ 4,088,350 $ 18,836 $ -0- $ -0- $ -0- $ 4,107,186
4.01% -- 6.00% 8,683,963 403,378 141,389 56,722 28,616 9,314,068
6.01% -- 8.00% 15,071,263 1,056,017 214,579 12,183 263,292 16,617,334
8.01% -- 10.00% -0- -0- -0- -0- -0- -0-
10.01% -- 12.00% 59 61 9,156 55 -0- 9,331
----------------- ---------------- -------------- -------------- --------------- -----------------
$27,843,635 $1,478,292 $ 365,124 $ 68,960 $ 291,908 $ 30,047,919
================= ================ ============== ============== =============== =================
(a) Includes passbook, checking, and money market deposit accounts, which have
no stated maturity.
As of December 31, 2000, the aggregate amount outstanding of time
certificates of deposit in amounts of $100,000 or more was $4.0 billion, of
which $645 million were retail jumbo CDs, $185 million were wholesale CDs, and
the remainder were non-jumbo retail CDs. The following table presents the
maturity of these time certificates of deposit at December 31, 2000.
TABLE 4
Maturities of Time Certificates of Deposit Equal to or Greater than $100,000
(Dollars in Thousands)
3 months or less $ 1,550,480
Over 3 months through 6 months 1,126,688
Over 6 months through 12 months 897,694
Over 12 months 393,350
-----------------
$ 3,968,212
=================
More information regarding deposits is included in Note I to the Financial
Statements included in Item 14.
Borrowings
The Company generally may borrow from the FHLB upon the security of a) the
capital stock of the FHLB owned by the Company, b) certain of its residential
mortgage loans and MBS, or c) certain other assets (principally obligations of,
or guaranteed by, the United States Government or a federal agency). The Company
uses FHLB borrowings, also known as "advances," to supplement cash flow and to
provide funds for loan originations. Advances offer strategic advantages for
asset-liability management, including long-term maturities and, in certain
cases, prepayment at the Company's option. Each advance has a specified maturity
and interest rate, which may be fixed or variable. At December 31, 2000, the
Company had $19.7 billion in FHLB advances outstanding, compared to $8.9 billion
at yearend 1999. During 1998, the Company paid off, before maturity, $4.4
billion of high-cost FHLB of San Francisco advances and, as a result, incurred a
$21 million pre-tax charge for the penalties associated with these prepayments.
See "Extraordinary Item" discussion on page 26.
The Company enters into reverse repurchase agreements with selected major
government securities dealers, large banks, or the FHLB of San Francisco and the
FHLB of Dallas. A reverse repurchase agreement involves the sale and delivery of
U.S. Government securities or mortgage-backed securities by the Company to a
broker or dealer coupled with an agreement to buy the securities back at a later
date. Under generally accepted accounting principles, these transactions qualify
to be accounted for as borrowings secured by securities. The Company pays the
counterparty a variable or fixed rate of interest for the use of the funds for
the period involved. At maturity, the borrowings are repaid (by repurchase of
the same securities) and the same securities are returned to the Company.
The Company also enters into dollar reverse repurchase agreements (dollar
reverses) with selected major government securities dealers, as well as large
banks. A dollar reverse involves the sale and delivery of mortgage-backed
securities by the Company to a broker or dealer, coupled with an agreement to
purchase securities of the same type and interest coupon at a fixed price for
settlement at a later date. Under generally accepted accounting principles,
these transactions are properly accounted for as borrowings secured by
mortgage-backed securities. The Company pays the brokers and dealers a fixed
rate of interest for the use of the funds for the period involved, which is
generally short-term. At maturity, the secured borrowings are repaid (by
purchase of similar securities) and similar securities are delivered to the
Company.
The Company monitors the level of activity with any one party in connection
with reverse repurchase agreements and dollar reverses in order to minimize its
risk exposure in these transactions. Reverse repurchase agreements and dollar
reverses amounted to $857 million at December 31, 2000, compared to $1.0 billion
at yearend 1999.
At December 31, 2000, Golden West, at the holding company level, had
principal amounts outstanding of $600 million of subordinated debt. As of
December 31, 2000, Golden West's subordinated debt securities were rated A3 and
A- by Moody's Investors Service (Moody's) and Standard & Poor's Corporation
(S&P), respectively.
During November 1996, WSB received permission from the OTS to issue
non-convertible medium-term notes to institutional investors under rules similar
to Office of the Comptroller of the Currency rules applicable to similarly
situated national banks. As of December 31, 2000, WSB had not issued any notes
under this authority.
During July 2000, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance or sale of up to $1.0
billion of securities, including senior debt, subordinated debt, and preferred
stock. The Company has not issued any securities under this registration
statement.
The table below sets forth the composition of the Company's borrowings at
December 31.
TABLE 5
Composition of Borrowings
(Dollars in Thousands)
2000 1999 1998 1997 1996
---------------- --------------- -------------- ---------------- ----------------
FHLB advances. . . . . . . . . . . $19,731,797 $ 8,915,218 $6,163,472 $ 8,516,605 $ 8,798,433
Reverse repurchase agreements. . . 857,274 970,129 1,252,469 2,334,048 1,614,763
Dollar reverse repurchase
agreements . . . . . . . . . . -0- 75,047 -0- -0- 293,363
Medium-term notes . . . . . . . . . -0- -0- -0- 109,992 589,845
Subordinated debt . . . . . . . . 598,791 812,950 911,753 1,110,488 1,323,996
---------------- --------------- -------------- ---------------- ----------------
Total borrowings. . . . . . . . $21,187,862 $10,773,344 $8,327,694 $12,071,133 $12,620,400
================ =============== ============== ================ ================
Weighted average interest rate
of total borrowings . . . . . . 6.66% 5.77% 5.87% 5.99% 5.80%
================ =============== ============== ================ ================
More information concerning the borrowings of the Company is included in
Notes J, K, and L to the Financial Statements, which are included in Item 14.
Loans Receivable and Mortgage-Backed Securities
The Company invests primarily in whole loans. From time to time, the
Company securitizes loans from its portfolio into mortgage-backed securities
(MBS) and Real Estate Mortgage Investment Conduit Securities (MBS-REMICs). MBS
and MBS-REMICs are available to be used as collateral for borrowings. At
December 31, 2000, 1999, and 1998, the balance of loans receivable including MBS
was $52.3 billion, $39.6 billion, and $35.8 billion, respectively. Included in
the $52.3 billion at December 31, 2000 was $7.8 billion of Federal National
Mortgage Association (FNMA) MBS with the underlying loans subject to full credit
recourse to the Company, $10.4 billion of MBS-REMICs, and $456 million of
purchased MBS. Included in the $39.6 billion at December 31, 1999 was $3.9
billion of FNMA MBS with the underlying loans subject to full credit recourse to
the Company, $7.2 billion of MBS-REMICs, and $514 million of purchased MBS.
Included in the $35.8 billion at December 31, 1998 was $3.9 billion of FNMA MBS
with the underlying loans subject to full credit recourse to the Company, $5.5
billion of MBS-REMICs, and $686 million of purchased MBS.
The loan portfolio, including MBS, grew $12.8 billion or 32% and $3.8
billion or 11% for the year ended December 31, 2000 and 1999, respectively. Loan
portfolio repayments were $6.9 billion, $7.7 billion, and $8.3 billion for the
years ended December 31, 2000, 1999, and 1998, respectively. Loan portfolio
repayments were lower in 2000 and in 1999 as compared to 1998 due to a decrease
in prepayments.
Mortgage-Backed Securities
The Company classifies its MBS as either held to maturity or available for
sale. The Company has no trading MBS. MBS held to maturity are recorded at cost
because the Company has the ability and intent to hold these MBS to maturity.
Premiums and discounts on MBS are amortized or accreted using the interest
method over the estimated life of the security. At December 31, 2000, 1999, and
1998, the Company had MBS held to maturity in the amount of $18.5 billion, $11.6
billion, and $9.9 billion, respectively.
MBS available for sale are reported at fair value, with unrealized gains
and losses excluded from earnings and reported net of applicable income taxes as
a separate component of stockholders' equity until realized. At December 31,
2000, 1999, and 1998, the Company had MBS available for sale in the amount of
$70 million, $79 million, and $114 million, respectively, including unrealized
gains on MBS available for sale of $1 million, $1 million, and $5 million,
respectively. Realized gains or losses on sales of MBS are recorded in earnings
at the time of sale and are determined by the difference between the net sales
proceeds and the cost of the MBS, using specific identification, adjusted for
any unamortized premium or discount.
During 2000, 1999, and 1998, the Company securitized $4.6 billion, $3.7
billion, and $6.4 billion, respectively, of mortgage loans from its loan
portfolio into Real Estate Mortgage Investment Conduits formed by WSB.
Classified as MBS held to maturity, MBS-REMICs are being used as collateral for
borrowings. The REMICs are not recorded as sales because 100% of the beneficial
ownership interests are retained by the Company, including both the primary and
subordinate retained interests.
During 2000, 1999, and 1998, the Company securitized $4.8 billion, $1.1
billion, and $1.8 billion, respectively, of adjustable rate mortgages (ARMs)
into FNMA adjustable rate MBS. The FNMA MBS held to maturity are available to be
used as collateral for borrowings and are subject to full credit recourse to the
Company.
Repayments of MBS during the years 2000, 1999, and 1998 amounted to $2.5
billion, $2.8 billion, and $2.1 billion, respectively. MBS repayments were lower
in 2000 due to a decrease in the prepayment rate. MBS repayments were higher in
1999 due to the increase in total MBS outstanding.
For more information on MBS, see Notes D and E to the Financial Statements
included in Item 14.
Loans
Income from real estate loans provides the principal source of revenue to
the Company in the form of interest, loan origination fees, and other fees.
Loans made by the Company are generally secured by first liens primarily on
residential properties. Although the Company has from time to time made
commercial real estate and construction loans, the Company is not currently
active in these segments of the lending market. The Company has the authority to
originate loans in any part of the United States. At December 31, 2000, the
Company was originating loans in Arizona, California, Colorado, Connecticut,
Delaware, Florida, Georgia, Idaho, Indiana, Illinois, Kentucky, Kansas,
Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New
Mexico, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota,
Texas, Tennessee, Utah, Virginia, Washington, and Wisconsin. The Company also
makes loans to customers on the security of their deposit accounts. Deposit
loans constituted less than one percent of the Company's total loans outstanding
as of December 31, 2000 and 1999.
The tables on the following two pages set forth the Company's loan
portfolio by state as of December 31, 2000 and 1999.
TABLE 6
Loan Portfolio by State
December 31, 2000
(Dollars in Thousands)
Residential
Real Estate Commercial Loans
------------------------------- Real Total as a% of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- --------------------- -------------- ------------- ---------- --------------- --------------- ---------------
California $ 29,347,017 $ 3,434,663 $ 108 $ 24,312 $ 32,806,100 63.13%
Florida 2,518,245 15,862 -0- 256 2,534,363 4.88
Texas 2,079,256 60,746 220 1,061 2,141,283 4.12
New Jersey 1,949,096 -0- -0- 2,516 1,951,612 3.76
Washington 1,075,055 574,651 -0- -0- 1,649,706 3.17
Illinois 1,520,620 121,102 -0- -0- 1,641,722 3.16
Colorado 1,290,477 185,567 -0- 4,634 1,480,678 2.85
Arizona 1,052,636 17,273 -0- 14 1,069,923 2.06
Pennsylvania 1,064,820 2,332 -0- 2,297 1,069,449 2.06
Other (b) 5,559,064 55,264 19 4,720 5,619,067 10.81
-------------- ------------- ---------- --------------- --------------- ------------
Totals $ 47,456,286 $ 4,467,460 $ 347 $ 39,810 51,963,903 100.00%
============== ============= ========== =============== ============
SFAS 91 deferred loan costs 147,751
Loan discount on purchased loans (1,470)
Undisbursed loan funds (6,703)
Allowance for loan losses (236,708)
Loans to facilitate (LTF) interest reserve (237)
Troubled debt restructured (TDR) interest reserve (335)
Loans on deposits 21,429
---------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMICs 51,887,630
Loans securitized into FNMA MBS and MBS-REMICs (18,124,987)(c)
---------------
Total loan portfolio $ 33,762,643
===============
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) Includes states with loans less than 2% of total loans.
(c) The above schedule includes the December 31, 2000 balances of loans that
were securitized and retained as FNMA MBS with recourse and MBS-REMICs.
TABLE 7
Loan Portfolio by State
December 31, 1999
(Dollars in Thousands)
Residential
Real Estate Commercial Loans
------------------------------- Real Total as a% of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- --------------------- -------------- ------------- ---------- --------------- --------------- ---------------
California $ 21,870,151 $3,351,504 $ 185 $ 28,449 $ 25,250,289 64.39%
Florida 1,767,662 14,878 -0- 461 1,783,001 4.55
Texas 1,580,035 59,381 374 1,208 1,640,998 4.18
New Jersey 1,342,963 -0- -0- 3,614 1,346,577 3.43
Illinois 1,212,369 119,469 -0- -0- 1,331,838 3.40
Washington 720,326 490,169 -0- -0- 1,210,495 3.09
Colorado 992,624 175,566 -0- 5,156 1,173,346 2.99
Arizona 845,995 18,653 -0- -0- 864,648 2.20
Pennsylvania 767,139 4,091 -0- 2,603 773,833 1.97
Other (b) 3,794,829 40,362 53 7,658 3,842,902 9.80
-------------- ------------- ---------- --------------- --------------- ------------
Totals $ 34,894,093 $ 4,274,073 $ 612 $ 49,149 39,217,927 100.00%
============== ============= ========== =============== ============
SFAS 91 deferred loan costs 70,211
Loan discount on purchased loans (1,967)
Undisbursed loan funds (5,022)
Allowance for loan losses (232,134)
Loans to facilitate (LTF) interest reserve (325)
Troubled debt restructured (TDR) interest reserve (1,079)
Loans on deposits 20,107
---------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMICs 39,067,718
Loans securitized into FNMA MBS and MBS-REMICs (11,147,901)(c)
---------------
Total loan portfolio $ 27,919,817
===============
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) Includes states with loans less than 2% of total loans.
(c) The above schedule includes the December 31, 1999 balances of loans that
were securitized and retained as FNMA MBS with recourse and MBS-REMICs.
The table below sets forth the composition of the Company's loan portfolio
by type of collateral at December 31.
TABLE 8
Loan Portfolio by Type of Security
(Dollars in Thousands)
2000 1999 1998 1997 1996
-------------- --------------- --------------- -------------- ----------------
Loans collateralized primarily
by first deeds of trust:
One-to four-family units . . . . $ 31,353,927 $ 26,041,066 $ 21,639,015 $ 28,978,476 $ 25,862,898
Over four-family units. . . . . . 2,444,832 1,979,199 4,260,631 4,462,990 4,403,389
Commercial real estate. . . . . . 39,810 49,149 65,865 82,888 97,852
Land. . . . . . . . . . . . . . . 347 612 798 977 1,147
Loans on deposits . . . . . . . . . 21,429 20,107 25,279 28,167 31,936
Less:
Undisbursed loan funds. . . . . . 6,703 5,022 3,080 3,306 3,920
Unearned fees (deferred costs)
and discounts . . . . . . . . (146,281) (68,244) 15,273 41,470 62,762
LTF and TDR interest reserve . 572 1,404 2,356 4,483 7,176
Unamortized discount arising
from acquisitions . . . . . . -0- -0- 5,125 10,250 14,241
Allowance for loan losses . . . . 236,708 232,134 244,466 233,280 195,702
-------------- --------------- --------------- -------------- ----------------
Total loans receivable . . . . . . . 33,762,643 27,919,817 25,721,288 33,260,709 30,113,421
Loans collateralized primarily by
first deeds of trust, which have
been securitized into MBS:
One-to four-family units . . . . 16,102,358 8,853,027 9,346,004 3,030,390 3,265,424
Over four-family units. . . . . . 2,022,629 2,294,874 -0- -0- -0-
-------------- --------------- --------------- -------------- ----------------
Total loans securitized into MBS . 18,124,987 11,147,901 9,346,004 3,030,390 3,265,424
-------------- --------------- --------------- -------------- ----------------
Loan Portfolio including MBS $ 51,887,630 $ 39,067,718 $ 35,067,292 $ 36,291,099 $ 33,378,845
============== =============== =============== ============== ================
At December 31, 2000, 99% of the loans in the portfolio (including loans
securitized into MBS) had remaining terms to maturity in excess of 10 years.
The following table sets forth the amount of loans due after one year that
have predetermined interest rates and the amount that have floating interest
rates at December 31, 2000.
TABLE 9
Loans Due After One Year
(Dollars in Thousands)
Loans
Securitized Loans
into MBS Receivable Total
----------------- ---------------- -----------------
Adjustable Rate $17,199,651 $32,193,348 $49,392,999
Fixed Rate 923,244 1,534,614 2,457,858
----------------- ---------------- -----------------
$18,122,895 $33,727,962 $51,850,857
================= ================ =================
The following table sets forth information concerning new loans made by the
Company during 2000, 1999, and 1998 by type and purpose of loan.
TABLE 10
New Loan Originations by Type and Purpose
(Dollars in Thousands)
2000 1999 1998
----------------------------------- ----------------------------------- ----------------------------------
No. of % of No. of % of No. of % of
Type Loans Amount Total Loans Amount Total Loans Amount Total
- ------------------- --------- ------------ ------- --------- ------------ ------- -------- ------------ -------
Residential
(one unit) 108,539 $18,627,153 94.2% 77,790 $11,740,910 92.7% 51,881 $7,585,610 92.7%
Residential
(2 to 4 units) 2,238 478,297 2.4 1,907 356,340 2.8 1,382 214,618 2.6
Residential
(5 or more units) 941 677,237 3.4 865 574,961 4.5 733 387,706 4.7
--------- ------------ ------- --------- ------------ ------- -------- ------------ -------
Totals 111,718 $19,782,687 100.0% 80,562 $12,672,211 100.0% 53,996 $8,187,934 100.0%
========= ============ ======= ========= ============ ======= ======== ============ =======
2000 1999 1998
----------------------------------- ----------------------------------- ----------------------------------
No. of % of No. of % of No. of % of
Type Loans Amount Total Loans Amount Total Loans Amount Total
- ------------------- --------- ------------ ------- --------- ------------ ------- -------- ------------ -------
Purchase 79,038 $13,045,821 65.9% 52,685 $ 7,664,726 60.5% 30,902 $4,548,415 55.6%
Refinance 32,680 6,736,866 34.1 27,877 5,007,485 39.5 23,094 3,639,519 44.4
--------- ------------ ------- --------- ------------ ------- -------- ------------ -------
Totals 111,718 $19,782,687 100.0% 80,562 $12,672,211 100.0% 53,996 $8,187,934 100.0%
========= ============ ======= ========= ============ ======= ======== ============ =======
New loan originations in 2000, 1999, and 1998 amounted to $19.8 billion,
$12.7 billion, and $8.2 billion, respectively. The increase in 2000 was due to a
strong demand for adjustable rate loans, the Company's primary product. The
increase in 1999 was due to a renewed demand for adjustable rate loans as
interest rates moved up and the cost of fixed-rate loans increased. Also in
1999, the Company increased the size of its loan origination staff to take
advantage of favorable market conditions.
The Company originates adjustable rate mortgages tied to various indexes,
principally the Golden West Cost of Savings Index (COSI), the Eleventh District
Cost of Funds Index (COFI), and the twelve-month rolling average of the One-Year
U. S. Treasury Constant Maturity (TCM).
The following table shows the distribution of ARM originations by index for
the years ended December 31, 2000, 1999, and 1998.
TABLE 11
Adjustable Rate Mortgage Originations by Index
(Dollars in Thousands)
ARM Index 2000 1999 1998
------------------- ---------------- ----------------- ---------------
COSI $12,872,834 $ 7,996,477 $1,738,592
COFI 5,701,413 3,264,773 3,753,081
TCM 470,171 270,651 1,243,315
---------------- ----------------- ---------------
$19,044,418 $11,531,901 $6,734,988
================ ================= ===============
The following table shows the distribution by index of the Company's
outstanding balance of adjustable rate mortgages (including ARM MBS with
recourse and ARM MBS-REMICs) at December 31.
TABLE 12
Adjustable Rate Mortgage Portfolio by Index
(Including ARM MBS with Recourse and ARM MBS-REMICs)
(Dollars in Thousands)
ARM Index 2000 1999 1998
------------------- ---------------- ----------------- ---------------
COSI $20,460,242 $ 9,182,829 $ 1,703,283
COFI 27,405,401 26,217,670 29,761,484
TCM 1,457,232 1,266,541 1,256,775
Other 182,778 152,470 201,756
---------------- ----------------- ----------------
$49,505,653 $36,819,510 $32,923,298
================ ================= ================
The largest source of mortgage originations is loans secured by residential
properties in California. Loans originated in California were $12.4 billion in
2000 compared to $8.0 billion in 1999 and $5.1 billion in 1998. In 2000, 63% of
total origination volume was on California residential property compared to 63%
in 1999 and 62% in 1998. The five largest states, other than California, for
originations for the year ended December 31, 2000, were Florida, New Jersey,
Texas, Washington, and Illinois with a combined total of 19% of total
originations. The percentage of loans originated in California has remained
consistently high during the three years under discussion due to the strong
California real estate market.
Federal regulations permit federally chartered savings banks to make or
purchase both fixed-rate loans and loans with periodic adjustments to the
interest rate. These latter types of loans are subject to the following primary
limitations: (i) the adjustments must be based on changes in a specified
interest rate index, which may be selected by the savings bank but which must be
readily available to, and independently verifiable by, the borrower; and (ii)
adjustments to the interest rate may be implemented through changes in the
monthly payment amount and/or adjustment to the outstanding principal balance or
term.
Pursuant to the aforementioned powers, the Company offers adjustable rate
mortgages, and this type of mortgage is the Company's primary real estate loan.
The portion of the mortgage portfolio (including MBS) composed of rate-sensitive
loans was 95% at yearend 2000 compared to 93% at yearend 1999 and 92% at yearend
1998. The Company's ARM originations constituted approximately 96% of new
mortgage loans made in 2000, compared with 91% in 1999 and 82% in 1998.
Most of the Company's ARMs carry an interest rate that changes monthly
based on movements in certain indices. The Company also offers a "modified" ARM,
a loan that offers a low introductory rate generally below the initial fully
indexed contract rate for a specified period, normally one to 12 months.
However, the borrower must qualify at the initial fully indexed contract rate.
During the life of the loan, the interest rate may not be raised above a
lifetime cap, set at the time of origination or assumption. The weighted average
maximum lifetime cap rate on the Company's ARM loan portfolio (including ARM MBS
and MBS-REMICs before any reduction for loan servicing fees) was 12.28%, or
4.17% above the actual weighted average rate at December 31, 2000, versus
12.44%, or 5.32% above the weighted average rate at yearend 1999.
The following table shows the Company's ARM loans by lifetime cap bands as
of December 31, 2000.
TABLE 13
Adjustable Rate Mortgage Portfolio by Lifetime Cap Bands
December 31, 2000
(Dollars in Thousands)
ARM Number % of Total
Cap Bands Balance of Loans Balance
------------------------- -------------- ---------- -------------
Less than 9.00% $ -0- -0- 0.0%
9.00% - 9.49% 392 2 0.0%
9.50% - 9.99% 601 5 0.0%
10.00% - 10.49% 2,487 15 0.0%
10.50% - 10.99% 9,910 57 0.0%
11.00% - 11.49% 142,936 975 0.3%
11.50% - 11.99% 35,188,503 204,363 71.1%
12.00% - 12.49% 4,277,673 32,587 8.6%
12.50% - 12.99% 5,620,984 28,465 11.4%
13.00% - 13.49% 448,953 2,389 0.9%
13.50% - 13.99% 1,346,482 9,694 2.7%
14.00% or greater 2,399,298 16,973 4.9%
No Cap 67,434 1,733 0.1%
-------------- ---------- -----------
Total $ 49,505,653 297,258 100.0%
============== ========== ===========
Approximately $5.2 billion of the Company's ARMs (including MBS with
recourse and MBS-REMICs) have terms that state that the interest rate may not
fall below a lifetime floor, set at the time of origination or assumption. As of
December 31, 2000, $144 million of ARMs had reached their rate floors. The
weighted average floor rate on the loans that had reached their floor was 8.01%
at yearend 2000 compared to 7.69% at yearend 1999. Without the floor, the
average rate on these loans would have been 7.80% at December 31, 2000 and 6.92%
at December 31, 1999.
On most of the Company's ARMs, monthly payments of principal and interest
are adjusted annually with a maximum increase or decrease of 7-1/2% of the prior
year's payment. At five-year intervals, the payment may be adjusted without
limit to amortize the loan fully within the then-remaining term. Within these
five year periods, negative amortization (deferred interest) may occur to the
extent that the loan balance remains below 125% of the original mortgage amount,
unless the original loan to value ratio exceeded 85%, in which case the loan
balance cannot exceed 110% of the original mortgage amount.
On certain other ARMs, the payment and interest rate may change every six
months, with the maximum rate per change capped at one percent. These ARMs do
not allow negative amortization and, consequently, do not have the 7-1/2%
payment change limitation.
Interest rates charged by the Company on real estate loans are affected
principally by competition, and also by the supply of money available for
lending, loan demand, and factors that are, in turn, affected by general
economic conditions, regulatory and monetary policies of the federal government,
the OTS and the Federal Reserve Board, and legislation and other governmental
action dealing with budgetary and tax matters.
The Company originates loans through offices that are staffed by employees
who primarily contact local real estate brokers and mortgage brokers regarding
possible lending opportunities. The Company's loan approval process is intended
to assess both the borrower's ability to repay the loan and the adequacy of the
proposed security. Documentation for all loans is maintained in the Company's
loan servicing offices in San Antonio, Texas.
The Company generally lends up to 80% of the appraised value of residential
real property. In some cases, a higher amount is possible through a first
mortgage loan or a combination of a first and a second mortgage loan on the same
property. During 2000, 19% of loans originated exceeded 80% of the appraised
value of the secured property, including $353 million of firsts and $3.5 billion
of combined firsts and seconds. During 1999 and 1998, 19% and 5%, respectively,
of loans originated were in excess of 80% of the appraised value of the
residence.
The Company takes steps to reduce the potential credit risk with respect to
loans with a loan to value (LTV) over 80%. Among other things, the loan amount
may not exceed 95% of the appraised value of a single-family residence. Also,
some first mortgage loans with an LTV over 80% carry mortgage insurance, which
reimburses the Company for losses up to a specified percentage per loan, thereby
reducing the effective LTV to below 80%. Furthermore, the Company sells without
recourse a significant portion of its second mortgage originations. Sales of
second mortgages amounted to $198 million and $99 million in 2000 and 1999,
respectively. In addition, the Company carries pool mortgage insurance on most
seconds not sold. The cumulative losses covered by this pool mortgage insurance
are limited to 10% or 20% of the original balance of the insured pool.
The following table shows mortgage originations with LTV ratios or combined
LTV ratios greater than 80% for the year ended December 31, 2000 and 1999.
TABLE 14
Mortgage Originations With Loan to Value and
Combined Loan to Value Ratios Greater than 80%
(Dollars in Thousands)
For the Year Ended
December 31
-------------------------------------
2000 1999
--------------- ----------------
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 124,066 $ 98,141
With no insurance 229,397 233,212
--------------- ----------------
353,463 331,353
--------------- ----------------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 2,549,049 1,092,778
With no insurance 924,538 936,724
--------------- ----------------
3,473,587 2,029,502
--------------- ----------------
Total $ 3,827,050 $2,360,855
=============== ================
The following table shows the outstanding balance of mortgages with
original LTV or combined LTV ratios greater than 80% at December 31, 2000 and
1999.
TABLE 15
Balance of Mortgages with Loan to Value and
Combined Loan to Value Ratios Greater than 80%
(Dollars in Thousands)
As of December 31
-------------------------------------
2000 1999
---------------- -----------------
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 388,625 $ 393,580
With no insurance 823,864 844,847
---------------- -----------------
1,212,489 1,238,427
---------------- -----------------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 2,193,990 1,131,357
With no insurance 722,703 308,650
---------------- -----------------
2,916,693 1,440,007
---------------- -----------------
Total $4,129,182 $2,678,434
================ =================
The Company requires title for all mortgage loans and requires that fire
and casualty insurance be maintained on all improved properties that are
security for its loans. The original contractual loan payment period for
residential loans normally ranges from 15 to 40 years with most having original
terms of 30 years. However, the majority of such loans remain outstanding for a
shorter period of time.
To generate income and to provide additional funds for lending and
liquidity, the Company has from time to time sold, without recourse first
mortgages, including whole loans and participations in pools of loans to the
Federal National Mortgage Association. The Company also sells to FNMA whole
first loans with recourse, for which a recourse liability has been provided. The
Company continues to collect payments on the loans as they become due, and
otherwise to service the loans. The Company pays an agreed-upon yield on the
buyer's portion of the loans. This yield is usually less than the interest
agreed to be paid by the borrower, with the difference being retained by the
Company as servicing fee income.
Loans originated for sale were $114 million, $626 million, and $1.2 billion
for the years ended December 31, 2000, 1999, and 1998, respectively. The
reduction in loans originated for sale in 2000 and 1999 as compared to 1998 was
attributable to the decrease in fixed-rate originations. During 2000, 1999, and
1998, $29 million, $522 million, and $229 million, respectively, of loans were
converted at the customer's request, from adjustable rate to fixed-rate. The
Company continues to sell most of its new and converted fixed-rate loans. The
Company sold $152 million, $1.1 billion, and $1.4 billion of loans during 2000,
1999, and 1998, respectively. The Company recognized pre-tax gains on the sale
of loans of $7 million in 2000 compared to $22 million in 1999 and $25 million
in 1998. Included in the gains in 2000, 1999, and 1998 was $3 million, $21
million, and $23 million, respectively, due to the capitalization of mortgage
servicing rights (see page 18 for further information). The loans held for sale
portfolio had a balance of $128 million at December 31, 2000, all of which are
carried at the lower of cost or market. At December 31, 2000, the balance of
loans sold with recourse was $1.9 billion.
In addition to the loan portfolio (including MBS with recourse and
MBS-REMICs), the Company was engaged in servicing approximately $2.9 billion of
loan participations and whole loans for others at December 31, 2000. For each of
the years ended December 31, 2000, 1999, and 1998, fees received for such
servicing activities totaled $28 million, $21 million and $21 million,
respectively.
Loan repayments consist of monthly loan amortization and loan payoffs.
During 2000, 1999, and 1998, loan repayments (excluding MBS) amounted to $4.5
billion, $4.9 billion, and $6.2 billion, respectively. The decrease in
repayments in 2000 was due to a decrease in loan payoffs and due to the
securitization of loans into MBS, which reduced the balance of loans receivable.
The decrease in repayments in 1999 was due to a decrease in prepayments during
the second half of the year and due to the securitization of loans into MBS.
In addition to interest earned on loans, the Company receives points and
fees for originating loans. The income represented by such fees varies with the
volume and types of loans made. In 2000, 1999, and 1998, the Company responded
to competition by offering more low and zero point adjustable rate mortgage
options to its customers. The Company also charges fees for loan prepayments,
loan assumptions and modifications, late payments, and other miscellaneous
services.
The following table sets forth information relating to interest rates and
loan points charged for the years indicated.
TABLE 16
Weighted Average Interest Rates and Fees on New Loan Originations(a)
2000 1999 1998 1997 1996
---------- ---------- ---------- ----------- ----------
Fully-indexed weighted average interest rate on new real
estate loans originated 8.24% 7.60% 7.72% 7.59% 7.59%
Current weighted average interest rate on new real estate
loans originated (b) 6.18% 5.97% 6.20% 6.42% 6.56%
Weighted average points received on new real estate loans
originated .10% .16% .26% .18% .25%
(a) Excludes loans purchased.
(b) The current rate reflects the introductory rate on new loans being paid by
the borrower.
If a borrower fails to make required payments on a loan, the Company takes
steps required under applicable law to foreclose upon the security for the loan.
If a delinquency is not cured, the property is generally acquired by the Company
in a foreclosure sale or by taking a deed in lieu of foreclosure. If the
applicable period of redemption by the borrower (which varies from state to
state and by method of foreclosure pursued) has expired, the Company is free to
sell the property. The property may then be sold generally with a loan
conforming to normal loan requirements, or with a "loan to facilitate sale"
which is so designated if the loan involves terms more favorable to the borrower
than those normally permitted.
Various antideficiency and homeowner protective provisions of state law may
limit the remedies available to lenders when a residential mortgage borrower is
in default. The effect of these provisions, in most cases, is to limit the
Company to foreclosing upon, or otherwise obtaining ownership of, the property
securing the loan after default and to prevent the Company from recovering from
the borrower any deficiency between the amount realized from the sale of such
property and the amount owed by the borrower.
Mortgage Servicing Rights
Capitalized mortgage servicing rights are included in "Other assets" on the
Consolidated Statement of Financial Condition. The following table shows the
changes in capitalized mortgage servicing rights for the years ended 2000, 1999,
and 1998.
TABLE 17
Capitalized Mortgage Servicing Rights
(Dollars in Thousands)
2000 1999 1998
------------- --------------- ---------------
Beginning balance of capitalized mortgage servicing rights $ 37,295 $ 28,635 $ 11,116
New capitalized mortgage servicing rights from loan sales 3,407 20,556 22,680
Amortization of capitalized mortgage servicing rights (12,344) (11,896) (5,161)
------------- --------------- ---------------
Ending balance of capitalized mortgage servicing rights $ 28,358 $ 37,295 $ 28,635
============= =============== ===============
The book value of the Company's servicing rights did not exceed the fair
value at December 31, 2000, 1999, or 1998 and, therefore, no write-down of the
servicing rights to their fair value was necessary.
Asset Quality
An important measure of the soundness of the Company's loan and MBS
portfolio is its ratio of nonperforming assets (NPAs) to total assets.
Nonperforming assets include nonaccrual loans (loans, including loans
securitized into MBS with recourse and loans securitized into MBS-REMICs, that
are 90 days or more past due) and real estate acquired through foreclosure. No
interest is recognized on nonaccrual loans. The Company's troubled debt
restructured (TDRs) are made up of loans on which delinquent payments have been
capitalized or on which temporary interest rate reductions have been made,
primarily to customers negatively impacted by adverse economic conditions.
The following table sets forth the components of the Company's NPAs and
TDRs and the various ratios to total assets at December 31.
TABLE 18
Nonperforming Assets and Troubled Debt Restructured
(Dollars in Thousands)
2000 1999 1998 1997 1996
-------------- ------------- ------------- ------------- -------------
Non-accrual loans $ 231,155 $ 225,409 $ 262,332 $ 317,550 $ 373,157
Real estate acquired through foreclosure 8,061 10,840 42,572 61,517 82,075
Real estate in judgment 200 69 74 67 416
-------------- ------------- ------------- ------------- -------------
Total nonperforming assets $ 239,416 $ 236,318 $ 304,978 $ 379,134 $ 455,648
============== ============= ============= ============= =============
TDRs, net of interest reserve $ 1,933 $ 10,542 $ 22,774 $ 43,795 $ 84,082
============== ============= ============= ============= =============
Ratio of NPAs to total assets .43% .56% .79% .96% 1.21%
============== ============= ============= ============= =============
Ratio of TDRs to total assets .00% .03% .06% .11% .22%
============== ============= ============= ============= =============
Ratio of NPAs and TDRs to total assets .43% .59% .85% 1.07% 1.43%
============== ============= ============= ============= =============
NPAs at yearend 2000 were comparable to the NPAs outstanding at yearend
1999. The NPAs during 2000, 1999, and 1998 reflected the strong economy and
housing market in those years. The Company closely monitors all delinquencies
and takes appropriate steps to protect its interests. Interest foregone on
non-accrual loans (loans 90 days or more past due) amounted to $4 million in
2000, $4 million in 1999, and $8 million in 1998.
The Company's TDRs were $2 million or .00% of assets at December 31, 2000
compared to $11 million or .03% of assets at December 31, 1999 and $23 million
or .06% of assets at yearend 1998. Interest foregone on TDRs amounted to $181
thousand in 2000 compared to $446 thousand in 1999 and $899 thousand in 1998.
The tables on the following page show the Company's nonperforming assets by
state at December 31, 2000 and 1999.
TABLE 19
Nonperforming Assets by State
December 31, 2000
(Dollars in Thousands)
Non-Accrual Loans (a) Foreclosed Real Estate
------------------------------------------- ------------------------------------
Residential Commercial Commercial NPAa as
Real Estate Real Residential Real Total a% of
State 1 - 4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans
- ------------- ------------ ------------ -------------- ---------- --------- ----------- -------------- ----------
California $ 114,619 $ 333 $ 810 $ 1,797 $ -0- $ -0- $ 117,559 0.36%
Florida 22,438 -0- 26 283 -0- 73 22,820 0.90
Texas 11,147 -0- -0- 586 -0- -0- 11,733 0.55
New Jersey 16,169 -0- 45 447 -0- 188 16,849 0.86
Washington 3,766 298 -0- 113 -0- -0- 4,177 0.25
Illinois 11,118 216 -0- 384 -0- -0- 11,718 0.71
Colorado 1,190 -0- -0- -0- -0- -0- 1,190 0.08
Arizona 3,652 -0- -0- 657 -0- -0- 4,309 0.40
Pennsylvania 12,919 -0- -0- 1,268 -0- -0- 14,187 1.33
Other (c) 32,276 133 -0- 2,187 -0- 488 35,084 0.62
------------ ------------ -------------- ---------- --------- ----------- -------------- ---------
Totals $ 229,294 $ 980 $ 881 $ 7,722 $ -0- $ 749 239,626 0.46
============ ============ ============== ========== ========= ===========
REO general valuation allowance (210) (0.00)
-------------- ----------
Total nonperforming assets $ 239,416 0.46%
============== ==========
(a) Non-accrual loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The December 31, 2000 balances include loans that were securitized into
FNMA MBS and MBS-REMICs.
(c) Includes states with loans less than 2% of total loans.
TABLE 20
Nonperforming Assets by State
December 31, 1999
(Dollars in Thousands)
Non-Accrual Loans (a)
------------------------------------------- Foreclosed Real Estate
Residential Commercial -------------------------------------- NPAa as
Real Estate Real Residential Total a% of
State 1 - 4 5+ Estate 1 - 4 5+ NPAs(b) Loans
- ------------- ------------ ------------ -------------- ---------- --------- ----------- ---------
California $ 126,710 $ 2,063 $ 2,281 $ 7,630 $ -0- $ 138,684 0.55%
Florida 15,987 -0- 179 756 -0- 16,922 0.95
Texas 8,030 -0- -0- 892 -0- 8,922 0.54
New Jersey 16,251 -0- 384 87 -0- 16,722 1.24
Illinois 10,000 216 -0- 170 -0- 10,386 0.78
Washington 2,052 -0- -0- -0- -0- 2,052 0.17
Colorado 2,296 407 -0- -0- -0- 2,703 0.23
Arizona 5,301 -0- -0- 81 -0- 5,382 0.62
Pennsylvania 10,015 -0- -0- 159 -0- 10,174 1.31
Other (c) 20,424 84 2,729 1,363 -0- 24,600 0.64
------------ ----------- --------------- ---------- ---------- ----------- ---------
Totals $ 217,066 $ 2,770 $ 5,573 $11,138 $ -0- 236,547 0.60
============ =========== =============== ========== ==========
REO general valuation allowance (229) (0.00)
----------- ---------
Total nonperforming assets $ 236,318 0.60%
=========== =========
(a) Non-accrual loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The December 31, 1999 balances include loans that were securitized into
FNMA MBS and MBS-REMICs.
(c) Includes states with loans less than 2% of total loans.
A risk profile of loans, including securitized loans, is displayed by
components in the following table as of December 31, 2000:
TABLE 21
Risk Profile of Loans and Securitized Loans
December 31, 2000
(Dollars in thousands)
Residential
Real Estate Commercial
1 - 4 5+ Real Estate Total
---------------- -------------- --------------- ----------------
Nonaccrual loans $ 229,294 $ 980 $ 881 $ 231,155
Loans 30 to 89 days past due 567,971 2,304 -0- 570,275
Loans performing under
bankruptcy protection 150,793 3,709 62 154,564
Troubled debt restructured -0- 2,268 -0- 2,268
Other impaired loans 186 19,136 3,652 22,974
Performing loans not
otherwise classified 30,529,599 2,417,067 35,562 32,982,228
Securitized loans not
otherwise classified 15,978,443 2,021,996 -0- 18,000,439
---------------- -------------- --------------- ----------------
Totals Gross Loans $ 47,456,286 $ 4,467,460 $ 40,157 51,963,903
================ ============== ===============
SFAS 91 deferred loan costs 147,751
Loan discount on purchased loans (1,470)
Undisbursed loan funds (6,703)
Allowance for loan losses (236,708)
LTF interest reserve (237)
TDR interest reserve (335)
Loans on deposits 21,429
----------------
Total loan portfolio and loans securitized into FNMA MBS
with recourse and MBS-REMICs $51,887,630
================
Management has included its estimate of probable losses on these loans in
the allowance for loan losses and the reserve for losses on loans sold with
recourse or securitized and retained.
The Company provides specific valuation allowances for losses on loans when
impaired, and a write-down on foreclosed real estate when any significant and
permanent decline in value is identified. The Company also utilizes a
methodology for monitoring and estimating loan losses and recourse obligations
that is based on both historical loss experience in the loan portfolio and
factors reflecting current economic conditions. This approach uses a database
that identifies losses on loans and foreclosed real estate from past years to
the present, broken down by year of origination, type of loan, and geographical
area. Based on these historical analyses, management is then able to estimate a
range of general loss allowances by type of loan and risk category to cover
losses inherent in the portfolio. One-to-four single family real estate loans
are evaluated as a group. In addition, periodic reviews are made of individual
major multi-family and commercial real estate loans and foreclosed real estate.
Where indicated, specific and general valuation allowances are established or
adjusted. In estimating probable losses inherent in the portfolio, consideration
is given to the estimated sale price, cost of refurbishing the security
property, payment of delinquent taxes, cost of disposal, and cost of holding the
property. Additions to and reductions from the allowances are reflected in
current earnings based upon quarterly reviews of the portfolio. The review
methodology and historical analyses are reconsidered and updated quarterly.
The table below shows the changes in the allowance for loan losses for the
years indicated.
TABLE 22
Changes in Allowance for Loan Losses
(Dollars in Thousands)
2000 1999 1998 1997 1996
------------- ------------ ------------ ------------ -------------
Beginning allowance for loan losses $ 232,134 $ 244,466 $ 233,280 $ 195,702 $ 141,988
Provision for (recovery of) loan losses
charged to expense 9,195 (2,089) 11,260 57,609 84,256
Transfer of allowance to reserve for losses
on loans sold or securitized and retained (4,470) (12,043) -0- -0- -0-
Less loans charged off (623) -0- (1,387) (20,818) (31,239)
Add recoveries 472 1,800 1,313 787 697
------------- ------------ ------------ ------------ -------------
Ending allowance for loan losses $ 236,708 $ 232,134 $ 244,466 $ 233,280 $ 195,702
============= ============ ============ ============ =============
Ratio of net chargeoffs to average loans
outstanding (including MBS with recourse) .00% (.01)% .00% .06% .10%
============= ============ ============ ============ =============
Ratio of allowance for loan losses to
nonperforming assets 98.9% 98.2% 80.2% 61.5% 43.0%
============= ============ ============ ============ =============
Net chargeoffs were minimal for the years ended 2000, 1999, and 1998
primarily due to the strong California economy and housing market.
The table below shows the changes in the reserve for losses on loans sold
with recourse or securitized and retained for the years ended 2000, 1999, 1998,
and 1997.
TABLE 23
Changes in Reserve for Losses on Loans Sold with Recourse or Securitized and Retained
(Dollars in Thousands)
2000 1999 1998 1997
------------ ------------ ----------- -----------
Beginning balance of reserve for losses on loans
sold with recourse or securitized and retained $ 15,572 $ 2,256 $ 886 $ 602
Initial recourse liability recognized at time of sale 168 1,273 1,370 284
Net transfers from allowance for loan losses 4,470 12,043 -0- -0-
------------ ------------ ----------- -----------
Ending balance of reserve for losses on loans
sold with recourse or securitized and retained $ 20,210 $ 15,572 $ 2,256 $ 886
============ ============ =========== ===========
The table below shows the composition of the allowance for loan losses and
the reserve for losses on loans sold with recourse or securitized and retained
at December 31.
TABLE 24
Composition of Allowance for Loan Losses and the
Reserve for Losses on Loans Sold with Recourse or Securitized and Retained
(Dollars in Thousands)
2000 1999 1998 1997 1996
------------ ------------- ------------- ------------ -------------
Real Estate
1 to 4 units
General $229,368 $207,615 $194,429 $181,179 $148,006
Specific -0- 369 363 445 573
------------ ------------- ------------- ------------ -------------
229,368 207,984 194,792 181,624 148,579
------------ ------------- ------------- ------------ -------------
5+ units and commercial
General 23,514 30,648 33,884 33,139 28,942
Specific 4,036 9,074 18,046 19,403 18,783
------------ ------------- ------------- ------------ -------------
27,550 39,722 51,930 52,542 47,725
------------ ------------- ------------- ------------ -------------
Total $256,918 $247,706 $246,722 $234,166 $196,304
============ ============= ============= ============ =============
Ratio of allowance for loan
losses and reserve for losses
on loans sold with recourse or
securitized and retained to
total loans (including MBS with
recourse and MBS-REMICs) and to
loans sold with recourse .48% .60% .68% .63% .58%
============ ============= ============= ============ =============
As previously indicated, the low level of nonperforming assets (NPAs) and
troubled debt restructured (TDRs) over the past three years resulted from the
strong economy and housing market. The impact of the favorable environment is
reflected in the components of the allowance and reserve accounts. Specific
valuation allowances, primarily on large multi-family and commercial real estate
loans, decreased from $18 million at December 31, 1998 to $4 million at December
31, 2000. General loss reserves on large multi-family and commercial real estate
loans declined from $34 million at December 31, 1998 to $24 million at December
31, 2000. The general loss allowances on one-to-four single family real estate
loans increased from $194 million at December 31, 1998 to $229 million at
December 31, 2000 as a result of the increase in the total loan portfolio. As a
result of improved asset quality and rapid portfolio growth, the overall ratio
of the allowance and recourse reserves to total loans and loans sold or
securitized with recourse declined from .68% at the end of 1998 to .48% at the
end of 2000. The ratio to nonperforming assets of the allowance for loan losses
and the reserve for losses on loans sold with recourse or securitized and
retained was 107.31%, 104.82%, and 80.90% at December 31, 2000, 1999, and 1998,
respectively.
Investment Activities
The Company classifies its investment securities as either held to maturity
or available for sale. The Company has no trading securities. Held to maturity
securities are recorded at cost with any discount or premium amortized using a
method that is not materially different from the interest method, which is also
known as the level yield method. Securities held to maturity are recorded at
cost because the Company has the ability to hold these securities to maturity
and because it is Management's intention to hold them to maturity. Securities
available for sale increase the Company's portfolio management flexibility for
investments and are reported at fair value. Net unrealized gains and losses are
excluded from earnings and reported net of applicable income taxes in other
comprehensive income and as a separate component of stockholders' equity until
realized. Realized gains or losses on sales of securities are recorded in
earnings at the time of sale and are determined by the difference between the
net sales proceeds and the cost of the security, using specific identification,
adjusted for any unamortized premium or discount. The Company has Other
Investments, which are recorded at cost with any discount or premium amortized
using a method that is not materially different from the interest method. In
determining the amounts of assets to invest in each class of investments, the
Company considers relative rates, liquidity, and credit quality.
The table below sets forth the composition of the Company's securities
available for sale at December 31.
TABLE 25
Composition of Securities Available for Sale
(Dollars in Thousands)
2000 1999 1998
--------------- -------------- --------------
Equity securities $ 387,077 $ 264,491 $ 363,427
U.S. Treasury and Government agency obligations 5,009 6,344 5,814
Collateralized mortgage obligations 755 787 7,764
Certificate of deposit -0- 4,996 -0-
Commercial paper -0- 19,818 -0-
Medium-term notes -0- 23,008 -0-
--------------- -------------- --------------
$ 392,841 $ 319,444 $ 377,005
=============== ============== ==============
Included in the balances above are net unrealized gains on investment
securities available for sale of $382 million, $260 million, and $358 million at
December 31, 2000, 1999, and 1998, respectively. The cost basis of the
securities available for sale portfolio at December 31, 2000, 1999, and 1998 was
$11 million, $59 million, and $19 million, respectively, and had weighted
average yields (based on cost) of 38.31%, 12.78%, and 19.21% at December 31,
2000, 1999, and 1998, respectively. The yields in 2000, 1999, and 1998 reflect
the effect of the high yield on the Federal Home Loan Mortgage Corporation
stock.
The table below sets forth the composition of the Company's Other
Investments at December 31.
TABLE 26
Composition of Other Investments
(Dollars in Thousands)
2000 1999 1998
------------- -------------- --------------
Overnight Investments:
Federal funds $ 318,736 $ 88,510 $ 166,896
Eurodollar time deposits 40,000 197,000 -0-
Longer-Term Investments:
Bank notes -0- 25,000 25,000
Collateralized mortgage obligations 9,819 114,637 188,304
Medium-term notes -0- 42,009 42,185
------------- -------------- --------------
$ 368,555 $ 467,156 $ 422,385
============= ============== ==============
The weighted average yields on the Other Investments portfolio were 6.21%,
5.00%, and 4.92% at December 31, 2000, 1999, and 1998, respectively. There were
no sales of other investments during 2000, 1999, or 1998.
Goodwill
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions," (SFAS 72) for goodwill related to the Company's
acquisitions made prior to September 30, 1982. Up until 1996, the Company had
applied SFAS 72 only to acquisitions made after September 30, 1982. The adoption
of SFAS 72 for goodwill related to acquisitions of banking or thrift
institutions prior to September 30, 1982, is permitted but not required. SFAS 72
requires, among other things, that goodwill be amortized over a period no longer
than the estimated remaining life of the acquired long-term interest-earning
assets. As a result, in 1996 the Company wrote off goodwill totaling $205
million as the cumulative effect of the change in accounting for goodwill. The
remaining goodwill from acquisitions subsequent to 1982, amounting to less than
.2% of total assets, was not material and was reclassified to other assets.
Amortization of goodwill is recorded on the Company's Consolidated Statement of
Net Earnings under the section titled "Noninterest Income - Other".
Stockholders' Equity
The Company's stockholders' equity increased by $492 million during 2000 as
a result of earnings and increased market values of securities available for
sale partially offset by the $109 million cost of the repurchase of Company
stock and the payment of quarterly dividends to stockholders. The Company's
stockholders' equity increased by $71 million during 1999 as a result of
earnings offset by the $345 million cost of the repurchase of Company stock,
decreased market values of securities available for sale, and the payment of
quarterly dividends to stockholders. The Company's stockholders' equity
increased by $426 million during 1998 as a result of earnings and increased
market values of securities available for sale, partially offset by the $80
million cost of the repurchase of Company stock and the payment of quarterly
dividends to stockholders.
In November 1999, the Company acted to effect a three-for-one split of its
outstanding Common Stock in the form of a 200% stock dividend. This dividend was
payable December 10, 1999, to holders of record at the close of business on
November 15, 1999. Per share amounts in this 10-K filing have been restated to
reflect this stock dividend unless otherwise noted.
Since 1993, through four separate actions, the Company's Board of Directors
has authorized the purchase by the Company of up to 44.7 million shares of
Golden West's common stock. As of December 31, 2000, 42.9 million shares had
been repurchased and retired at a cost of $915 million since October 28, 1993,
of which 3.7 million shares were purchased and retired at a cost of $109 million
during 2000. Dividends from WSB are expected to continue to be the major source
of funding for the stock repurchase program. The purchase of Golden West stock
is not intended to have a material impact on the normal liquidity of the
Company.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), with amendments issued in September 2000.
This statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivative instruments as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In June 1999,
the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133" (SFAS 137) which delayed the effective date of SFAS
133 until fiscal years beginning after June 15, 2000. The Company adopted SFAS
133 as of January 1, 2001 and recorded a loss of $10 million before tax, or $6
million after tax. The Company does not currently intend to use hedge accounting
for the derivative financial instruments in portfolio at January 1, 2001.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS 140). This statement replaces
previously issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" (SFAS 125). SFAS 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS 125's provisions
without reconsideration. This statement is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after March 31,
2001. Because the Company retains 100% of the beneficial interests in its
MBS-REMIC securitizations, it does not have any effective "retained interests"
requiring disclosures under FAS 140. The implementation of SFAS 140 is not
expected to have a significant impact on the Company's financial statements.
Earnings Per Share (EPS)
The Company's Basic EPS was $3.44 for the year ended December 31, 2000,
compared to $2.90 and $2.60 (before the extraordinary item) for the years ended
December 31, 1999 and 1998, respectively. The Company reported Diluted EPS of
$3.41 for the year ended December 31, 2000 as compared to $2.87 and $2.58
(before the extraordinary item) for the years ended December 31, 1999 and 1998,
respectively.
Extraordinary Item
During 1998, the Company paid off, before maturity, $4.4 billion of
high-cost FHLB of San Francisco advances and, as a result, incurred a $21
million pre-tax charge for the penalties associated with these prepayments,
which was recorded as an extraordinary item.
Yield on Interest-Earning Assets/Cost of Funds
Information regarding the Company's yield on interest-earning assets and
cost of funds at December 31, 2000, 1999, and 1998 is contained in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and is incorporated herein by reference.
The gap table and related discussion included in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, gives
information on the repricing characteristics of the Company's interest-earning
assets and interest-bearing liabilities at December 31, 2000, and is
incorporated herein by reference.
The dollar amounts of the Company's income and interest expense fluctuate
depending both on changes in the respective interest rates and on changes in the
respective amounts (volume) of interest-earning assets and interest-bearing
liabilities. The following table sets forth certain information with respect to
the yields earned and rates paid on the Company's interest-earning assets and
interest-bearing liabilities.
TABLE 27
Average Interest-Earning Assets and Interest-Bearing Liabilities
At and for the Years Ended December 31
(Dollars in Thousands)
2000 1999 1998
------------------------------- ------------------------------- --------------------------------
End of End of End of
Average Average Period Average Average Period Average Average Period
Balances Yield Yield Balances Yield Yield Balances Yield Yield
------------ --------- -------- ------------ ------------------ ------------ ---------- --------
ASSETS
Investment Securities $ 2,966,636 6.61% 7.12% $ 3,207,032 5.35% 5.88% $ 2,956,971 5.72% 5.53%
Mortgage-backed securities 14,018,284 7.65% 7.98% 10,929,555 7.04% 7.17% 6,891,798 7.23% 7.20%
Loans receivable (a) 31,970,102 7.73% 8.05% 25,727,762 7.20% 7.16% 29,982,931 7.52% 7.36%
Invest. in capital stock of
FHLBs 788,306 7.40% 6.53% 612,579 5.43% 5.51% 692,345 5.87% 5.50%
------------ --------- ------------ ---------- ------------ ----------
Interest-earning assets $49,743,328 7.63% $40,476,928 6.98% $40,524,045 7.31%
============ ========= ============ ========== ============ ==========
LIABILITIES
Deposits:
Checking accounts $ 134,424 2.19% 2.91% $ 110,394 2.20% 3.06% $ 79,172 1.50% 2.06%
Savings accounts 8,376,899 3.82% 3.66% 9,888,073 3.93% 3.92% 6,805,841 3.98% 3.97%
Term accounts 20,622,941 5.68% 6.10% 17,419,254 4.94% 5.12% 19,028,844 5.32% 5.07%
------------ --------- -------- ------------ ---------- ------- ------------ ---------- --------
Total deposits 29,134,264 5.13% 5.52% 27,417,721 4.56% 4.69% 25,913,857 4.96% 4.67%
Advances from FHLBs 14,761,217 6.51% 6.65% 6,943,505 5.48% 5.64% 7,389,038 5.94% 5.67%
Reverse repurchases 1,399,580 6.18% 6.56% 1,189,581 5.18% 5.46% 2,004,388 5.64% 5.39%
Other borrowings 1,462,410 7.08% 7.17% 2,123,789 6.13% 7.63% 2,408,791 6.57% 7.90%
------------ --------- ------------ ---------- ------------ ----------
Interest-bearing liabilities $46,757,471 5.66% $37,674,596 4.84% $37,716,074 5.29%
============ ========= ============ ========== ============ ==========
Net interest spread 1.97% 2.14% 2.02%
========= ========== ==========
Net interest income $1,151,168 $ 1,003,485 $ 967,322
============ ============ ============
Net yield on average interest-
earning assets 2.31% 2.48% 2.39%
========= ========== ==========
(a) Includes nonaccrual loans (90 days or more past due)
The table below presents the changes for 2000 and 1999 from the respective
preceding year of the interest income and expense associated with each category
of interest-bearing asset and liability as allocated to changes in volume and
changes in rates.
TABLE 28
Volume and Rate Analysis of Interest Income and Interest Expense
Years Ended December 31
(Dollars in Thousands)
Increase/Decrease in Income/Expense
Due to Changes in Volume and Rate (a)
----------------------------------------------------------------
2000 1999 1998 2000 versus 1999 1999 versus 1998
------------ ------------ ------------ ----------------------------- ----------------------------------
Income/ Income/ Income/
Expense(b) Expense(b) Expense(b) Volume Rate Total Volume Rate Total
------------ ------------ ------------ -------- --------- --------- ----------- ----------- ----------
Interest Income
Investments $ 196,092 $ 171,498 $ 169,194 $ (11,443) $ 36,037 $ 24,594 $ 10,175 $ (7,871) $ 2,304
Mortgage-backed
securities 1,072,559 769,314 498,319 231,872 71,373 303,245 283,844 (12,849) 270,995
Loans receivable 2,469,556 1,851,790 2,254,427 474,570 143,196 617,766 (309,438) (93,199) (402,637)
Invest. in capital
stock of Federal Home
Loan Banks 58,333 33,243 40,613 11,066 14,024 25,090 (4,467) (2,903) (7,370)
------------ ------------ ------------
Total interest income 3,796,540 2,825,845 2,962,553
Interest Expense
Deposits
Checking accounts 2,946 2,433 1,184 527 (14) 513 567 682 1,249
Savings accounts 319,594 388,113 271,172 (57,911) (10,608) (68,519) 120,917 (3,976) 116,941
Term accounts 1,171,907 859,818 1,012,987 171,259 140,830 312,089 (82,333) (70,836) (153,169)
------------ ------------ ------------ ---------- ---------- ---------- ----------- ---------- ---------
Total deposits 1,494,447 1,250,364 1,285,343 113,875 130,208 244,083 39,151 (74,130) (34,979)
Advances from Federal
Home Loan Banks 960,824 380,189 438,660 497,261 83,374 580,635 (25,552) (32,919) (58,471)
Securities sold under
agreements to
repurchase 86,549 61,565 112,942 11,875 13,109 24,984 (42,794) (8,583) (51,377)
Other borrowings 103,552 130,242 158,286 (53,019) 26,329 (26,690) (17,929) (10,115) (28,044)
------------ ------------ ------------ ---------- ---------- ---------- ----------- ---------- ---------
Total interest expense 2,645,372 1,822,360 1,995,231
------------ ------------ ------------
Net interest income $1,151,168 $1,003,485 $ 967,322 $ 136,073 $ 11,610 $147,683 $ 27,238 $ 8,925 $ 36,163
============ ============ ============ ========== ========== ========== =========== ========== =========
Net interest income increase
(decrease) as a percentage
of average earning assets (c) .28% .02% .30% .07% .02% .09%
========== ========== ========= ========== ========= =========
(a) The change in volume is calculated by multiplying the difference between
the average balance of the current year and the prior year by the prior
year's average yield. The change in rate is calculated by multiplying the
difference between the average yield of the current year and the prior year
by the prior year's average balance. The mixed changes in rate/volume is
calculated by multiplying the difference between the average balance of the
current year and the prior year by the difference between the average yield
of the current year and the prior year. This amount is then allocated
proportionately to the volume and rate changes calculated previously.
(b) The effects of interest rate swap activity has been included in income and
expense of the related assets and liabilities.
(c) Includes nonaccrual loans (90 days or more past due).
Competition and Other Matters
The Company experiences strong competition in both attracting deposits and
making real estate loans. Competition for savings deposits has historically come
from money market mutual funds, other savings institutions, commercial banks,
and government and corporate debt securities. In addition, traditional financial
institutions have found themselves in competition with other financial services
entities, such as securities dealers, insurance companies, credit unions, and
others, including Internet companies. The principal methods used by the Company
to attract deposits, in addition to the interest rates and terms offered,
include the offering of a variety of services and the convenience of office
locations and hours of public operation.
Competition in making real estate loans comes principally from other
savings institutions, mortgage banking companies, and commercial banks. Many of
the nation's largest savings institutions, mortgage banking companies, and
commercial banks are headquartered or have a significant number of branch
offices in the areas in which the Company competes. Changes in the government's
monetary, tax, or housing financing policies can also affect the ability of
lenders to compete profitably. The primary factors in competing for real estate
loans are interest rates, loan fee charges, underwriting standards, and the
quality of service to borrowers and their representatives. In addition, the
Company competes indirectly with government-sponsored enterprises, notably the
Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage
Corporation (FHLMC), and the Federal Home Loan Banks.
Thrift Industry
The operations of the thrift industry are significantly influenced by
general economic conditions, by the related monetary and fiscal policies of the
federal government, and by the policies of financial institution regulatory
authorities. Deposit flows and costs of funds are impacted by interest rates on
competing investments and general market rates of interest. Lending and other
investment activities are affected by the demand for mortgage financing and for
consumer and other types of loans, which in turn are affected by the interest
rates at which such financing may be offered and other factors affecting the
supply of housing and the availability of funds.
Regulation
FEDERAL HOME LOAN BANK SYSTEM. The FHLB system functions in a reserve
credit capacity for its members, which may include savings associations, savings
banks, commercial banks, and credit unions. As members, WSB and WTX are required
to own capital stock of an FHLB in an amount that depends generally upon their
outstanding home mortgage loans or advances from such FHLB, and are authorized
to borrow funds from such FHLB (see Borrowings).
LIQUIDITY. During 1998, 1999, and 2000, the Office of Thrift Supervision
required insured institutions, such as WSB and WTX, to maintain a minimum amount
of liquid assets in the form of cash and securities approved by federal
regulations at either a) 4% of the quarterly average of daily balances of
short-term deposits and borrowings for the prior quarter or b) 4% of the prior
quarter's ending balance of short-term deposits and borrowings. At December 31,
2000, 1999, and 1998, WSB had liquidity in excess of the regulatory
requirements. WTX also met the applicable requirements during the periods under
discussion. In December 2000, Congress passed legislation which eliminated the
statutory requirements for the OTS to set minimum liquidity regulations.
FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC administers two separate
deposit insurance funds, the Bank Insurance Fund and the Savings Association
Insurance Fund. Each fund insures deposit accounts up to the maximum amount
permitted by law, currently $100,000 per insured depositor. The BIF is a deposit
insurance fund for commercial banks, federally chartered banks, and some state
chartered banks. The SAIF is a deposit insurance fund for most savings
associations. WSB is a member of the BIF, but a portion of WSB's deposits are
insured through the SAIF. WTX's deposits are also insured by the FDIC and WTX is
a member of the BIF. As a result, WSB and WTX are subject to supervision,
regulation, and examination by the FDIC. FDIC insurance is required for all
federally chartered financial institutions such as WSB and WTX. Such BIF
insurance may be terminated by the FDIC under certain circumstances involving
violations of regulations or unsound practices.
During 1996, federal legislation was enacted to capitalize the SAIF in
order to bring it into parity with the FDIC's other insurance fund, the BIF. The
new banking law required members to pay a levy of $4.7 billion to bring the SAIF
up to the required reserve level of 1.25% of insured deposits, but lowered
savings and loan deposit insurance premiums starting in 1997. As a result of
this legislation, the Company incurred a one-time charge of $133 million during
1996. The premiums paid for the years 1997 through 1999 were adjusted quarterly.
Beginning on January 1, 2000, the premium paid by WSB and WTX to the FDIC was
$.212 per $1,000.
The deposits of savings institutions insured by the SAIF may be converted
to BIF insurance. Further, deposits insured by the BIF may be converted to SAIF
insurance. Such conversions require payment of an exit fee to the insurance fund
that the institution leaves and an entrance fee to the insurance fund that the
institution enters.
OFFICE OF THRIFT SUPERVISION. Because they are federally chartered savings
institutions, the principal regulator of both WSB and WTX is the OTS. Under
various regulations of the OTS, savings institutions are required, among other
things, to pay assessments to the OTS, maintain required regulatory capital,
maintain liquid assets above specified minimums, and to comply with various
limitations on loans to one borrower, equity investments, investments in real
estate, and investments in corporate debt securities that are not investment
grade.
FEDERAL RESERVE SYSTEM. Federal Reserve Board regulations require savings
institutions to maintain noninterest-earning reserves against their checking
accounts. The balances maintained to meet the reserve requirements imposed by
the Federal Reserve Board may be used to satisfy liquidity requirements. WSB and
WTX are currently in compliance with all applicable Federal Reserve Board
reserve requirements.
Savings institutions have authority to borrow from the Federal Reserve Bank
but the Federal Reserve Board requires savings institutions to exhaust all FHLB
sources before borrowing from the Federal Reserve Bank.
REGULATORY CAPITAL. The OTS requires federally insured institutions such as
WSB and WTX to meet certain minimum capital requirements.
The following table summarizes WSB's regulatory capital ratios and compares
them to the OTS minimum requirements at December 31. The December 31, 1999
numbers are as reported to the OTS and have not been restated because the OTS
did not require them to be restated to reflect the reorganization that took
place in 2000.
TABLE 29
World Savings Bank, a Federal Savings Bank
Regulatory Capital Ratios
(Dollars in Thousands)
2000 1999
--------------------------------------------------------- ---------------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
--------------------------- -------------------------- --------------------------- --------------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
-------------- ---------- ------------- ---------- ------------- ----------- -------------- -----------
Tangible $3,653,377 6.60% $ 830,326 1.50% $ 2,514,211 6.64% $ 567,705 1.50%
Core 3,653,377 6.60 2,214,203 4.00 2,514,211 6.64 1,513,880 4.00
Risk-based 3,982,988 12.44 2,562,226 8.00 2,668,878 11.95 1,786,623 8.00
The following table summarizes WTX's regulatory capital ratio and compares
them to the OTS minimum requirements at December 31, 2000.
TABLE 30
World Savings Bank, FSB Texas
Regulatory Capital Ratios
(Dollars in Thousands)
2000
----------------------------------------------------------
ACTUAL REQUIRED
--------------------------- --------------------------
Capital Ratio Capital Ratio
-------------- ---------- ------------- ----------
Tangible $ 288,409 5.34% $ 80,982 1.50%
Core 288,409 5.34 215,951 4.00
Risk-based 288,410 26.69 86,432 8.00
In addition, institutions whose exposure to interest-rate risk as
determined by the OTS is deemed to be above normal may be required to hold
additional risk-based capital. The OTS has determined that WSB and WTX do not
have above-normal exposure to interest-rate risk.
The OTS has adopted rules based upon five capital tiers: well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. The determination of whether an institution falls
into a certain classification depends primarily on its capital ratios. As of
December 31, 2000, the most recent notification from the OTS categorized WSB
"well-capitalized" under the current requirements. There are no conditions or
events that have occurred since that notification that the Company believes
would have an impact on the categorization of WSB.
The table below shows a reconciliation of WSB's equity capital to
regulatory capital at December 31, 2000.
TABLE 31
World Savings Bank, a Federal Savings Bank
Reconciliation of Equity Capital to Regulatory Capital
(Dollars in Thousands)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
-------------- -------------- --------------- --------------- --------------- --------------
Common stock $ 300
Paid-in surplus 2,145,764
Retained earnings 1,507,313
Unrealized gain on
securities after tax 232,328
--------------
Equity capital $ 3,885,705 $ 3,885,705 $ 3,885,705 $ 3,885,705 $ 3,885,705 $ 3,885,705
==============
Direct investment (3,060)
Unrealized gain on
securities after tax (232,328) (232,328) (232,328) (232,328) (232,328)
General valuation allowance 232,671
Qualifying subordinated debt 100,000
-------------- --------------- --------------- --------------- --------------
Regulatory capital $ 3,653,377 $ 3,653,377 $ 3,653,377 $ 3,653,377 $ 3,982,988
============== =============== =============== =============== ==============
Total assets $55,695,385
==============
Adjusted total assets $55,355,063 $55,355,063 $55,355,063
============== =============== ===============
Risk-weighted assets $32,027,827 $32,027,827
=============== ==============
CAPITAL RATIO - ACTUAL 6.98% 6.60% 6.60% 6.60% 11.41% 12.44%
============== ============== =============== =============== =============== ==============
Regulatory Capital
Ratio Requirements:
Well-capitalized,
equal to or greater than 5.00% 6.00% 10.00%
=============== =============== ==============
The table below shows a reconciliation of WSB's equity capital to
regulatory capital at December 31, 1999.
TABLE 32
World Savings Bank, a Federal Savings Bank
Reconciliation of Equity Capital to Regulatory Capital
(Dollars in Thousands)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
-------------- -------------- --------------- --------------- --------------- --------------
Common stock $ 150
Paid-in surplus 1,672,138
Retained earnings 841,923
Unrealized loss on
securities after tax (20)
--------------
Equity capital $ 2,514,191 $ 2,514,191 $ 2,514,191 $ 2,514,191 $ 2,514,191 $ 2,514,191
==============
General valuation allowance 154,667
Unrealized loss on securities
after tax 20 20 20 20 20
-------------- --------------- --------------- --------------- --------------
Regulatory capital $ 2,514,211 $ 2,514,211 $ 2,514,211 $ 2,514,211 $ 2,668,878
============== =============== =============== =============== ==============
Total assets $ 37,835,121
==============
Adjusted total assets $ 37,846,989 $ 37,846,989 $ 37,846,989
============== =============== ===============
Risk-weighted assets $ 22,332,788 $ 22,332,788
=============== ==============
CAPITAL RATIO - ACTUAL 6.65% 6.64% 6.64% 6.64% 11.26% 11.95%
============== ============== =============== =============== =============== ==============
Regulatory Capital Ratio
Requirements:
Well-capitalized, equal
to or greater than 5.00% 6.00% 10.00%
=============== =============== ==============
The table below shows a reconciliation of WTX's equity capital to
regulatory capital at December 31, 2000.
TABLE 33
World Savings Bank, FSB Texas
Reconciliation of Equity Capital to Regulatory Capital
(Dollars in Thousands)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
-------------- -------------- --------------- -------------- -------------- ---------------
Common stock $ 150
Paid-in surplus 241,575
Retained earnings 46,684
--------------
Equity capital $ 288,409 $ 288,409 $ 288,409 $ 288,409 $ 288,409 $ 288,409
==============
General valuation allowance 1
-------------- --------------- -------------- -------------- ---------------
Regulatory capital $ 288,409 $ 288,409 $ 288,409 $ 288,409 $ 288,410
============== =============== ============== ============== ===============
Total assets $ 5,398,772
==============
Adjusted total assets $5,398,772 $5,398,772 $5,398,772
============== =============== ==============
Risk-weighted assets $1,080,394 $1,080,394
============== ===============
CAPITAL RATIO - ACTUAL 5.34% 5.34% 5.34% 5.34% 26.69% 26.69%
============== ============== =============== ============== ============== ===============
Regulatory Capital Ratio
Requirements:
Well-capitalized, equal
to or greater than 5.00% 6.00% 10.00%
=============== =============== ===============
The table below shows that WSB's regulatory capital exceeds the
requirements of the well-capitalized classification at December 31.
TABLE 34
World Savings Bank, a Federal Savings Bank
Regulatory Capital Compared to Well-Capitalized Classification Requirement
(Dollars in Thousands)
2000 1999
---------------------------------------------------- -----------------------------------------------------
ACTUAL WELL-CAPITALIZED ACTUAL WELL-CAPITALIZED
----------------------- -------------------------- ----------------------- --------------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------ ---------- ------------- ------------ ------------- --------- ------------ -------------
Leverage $3,653,377 6.60% $2,767,753 5.00% $2,514,211 6.64% $1,892,349 5.00%
Tier 1 risk based 3,653,377 11.41 1,921,670 6.00 2,514,211 11.26 1,339,967 6.00
Total risk-based 3,982,988 12.44 3,202,783 10.00 2,668,878 11.95 2,233,279 10.00
The table below shows that WTX's regulatory capital exceeds the
requirements of the well-capitalized classification at December 31, 2000.
TABLE 35
World Savings Bank, FSB Texas
Regulatory Capital Compared to Well-Capitalized Classification Requirement
(Dollars in Thousands)
2000
-------------------------------------------------------
ACTUAL WELL-CAPITALIZED
------------------------- ---------------------------
Capital Ratio Capital Ratio
------------ ---------- ------------- -----------
Leverage $ 288,409 5.34% $ 269,939 5.00%
Tier 1 risk based 288,409 26.69 64,824 6.00
Total risk-based 288,410 26.69 108,039 10.00
At December 31, 1999, WTX operated under the name World Savings Bank, a
State Savings Bank (WSSB) and was a state chartered savings bank regulated by
the FDIC. At December 31, 1999, WSSB had the following regulatory capital
calculated in accordance with the FDIC's capital standards:
TABLE 36
World Savings Bank, a State Savings Bank
Regulatory Capital Ratios
(Dollars in Thousands)
1999
----------------------------------------------------------
ACTUAL REQUIRED
--------------------------- --------------------------
Capital Ratio Capital Ratio
-------------- ---------- ------------- ----------
Tier 1 leverage $ 202,846 5.66% $ 107,593 3.00%
Tier 1 risk-based 202,846 26.90 30,161 4.00
Total risk-based 203,087 26.93 60,322 8.00
CAPITAL DISTRIBUTIONS BY SAVINGS INSTITUTIONS. During 2000, WSB paid no
upstream dividends to Golden West. See Item 5, "MARKET FOR THE REGISTRANT'S
COMMON STOCK AND RELATED SECURITY HOLDER MATTERS" on page 39, for a discussion
on certain limitations imposed by the OTS on dividends paid by savings
institutions.
LIMITATION ON LOANS TO ONE BORROWER. Current law subjects savings
institutions to the same loans-to-one borrower restrictions that are applicable
to national banks with limited provisions for exceptions. In general, the
national bank standard restricts loans to a single borrower to no more than 15%
of a bank's unimpaired capital and unimpaired surplus, plus an additional 10% if
the loan is collateralized by certain readily marketable collateral. (Real
estate is not included in the definition of "readily marketable collateral".) At
December 31, 2000, the maximum that WSB could have loaned to one borrower (and
related entities) was $597 million while the largest amount of loans it had to
one borrower was $47 million. At December 31, 2000, the maximum amount that WTX
could have loaned to one borrower (and related entities) was $43 million while
the largest amount of loans WTX had outstanding to any one borrower was $198
thousand.
DEPOSITOR PRIORITIES. In the event of the appointment of a receiver of a
federally chartered savings bank, such as WSB, based upon the failure of the
savings bank to meet certain minimum capital requirements or the existence of
certain other conditions, the Federal Deposit Insurance Act recognizes a
priority in favor of holders of withdrawable deposits (including the FDIC
subrogee or transferee) over general creditors (including holders of debt of
WSB). Thus, in the event of a liquidation of WSB or a similar event, claims for
deposits would have a priority over claims of holders of debt. As of December
31, 2000, WSB had approximately $30 billion of deposits outstanding.
POWERS OF THE FDIC IN CONNECTION WITH THE INSOLVENCY OF AN INSURED
DEPOSITORY INSTITUTION. If the FDIC is appointed a receiver or conservator of an
insured depository institution, such as WSB, the FDIC may disaffirm or repudiate
any contract or lease to which such institution is a party, the performance of
which is determined to be burdensome, and the disaffirmance or repudiation of
which is determined to promote the orderly administration of the institution's
affairs. The FDIC may contend that its power to repudiate "contracts" extends to
obligations such as the debt of the depository institution, and at least one
court has held that the FDIC can repudiate publicly-traded debt obligations. The
effect of any such repudiation should be to accelerate the maturity of debt.
Such repudiation would result in a claim by each holder of debt against the
receivership. The claim may be for principal and interest accrued through the
date of the appointment of the conservator or receiver. Alternatively, at least
one court has held that the claim would be in the amount of the fair market
value of the debt as of the date of the repudiation, which amount could be more
or less than accrued principal and interest. The amount paid on the claims of
the holders of the debt would depend, among other factors, upon the amount of
receivership assets available for the payment of unsecured claims and the
priority of the claim relative to the claims of other unsecured creditors and
depositors, and may be less than the amount owed to the holders of the debt. See
"Depositor Priorities" above. If the maturity of the debt were so accelerated,
and a claim relating to the debt paid by the receivership, the holders of the
debt might not be able, depending upon economic conditions, to reinvest any
amounts paid on the debt at a rate of interest comparable to that paid on the
debt. In addition, although the holders of the debt may have the right to
accelerate the debt in the event of the appointment of a conservator or receiver
of the depository institution, the FDIC as conservator or receiver may enforce
most types of contracts, including the debt pursuant to their terms,
notwithstanding any such acceleration provision. The FDIC as conservator or
receiver may also transfer to a new obligor any of the depository institution's
assets and liabilities, without the approval or consent of its creditors.
In its resolutions of the problems of an insured depository institution in
default or in danger of default, the FDIC is generally obligated to satisfy its
obligations to insured depositors at the least possible cost to the deposit
insurance fund. In addition, the FDIC may not take any action that would have
the effect of increasing the losses to the relevant deposit insurance fund by
protecting depositors for more than the insured portion of deposits (generally
$100,000) or by protecting creditors other than depositors. Existing law
authorizes the FDIC to settle all uninsured and unsecured claims in the
insolvency of an insured institution by making a final payment after the
declaration of insolvency. Such a payment would constitute full payment and
disposition of the FDIC's obligations to claimants. Existing law provides that
the rate of such final payment is to be a percentage reflecting the FDIC's
receivership recovery experience.
SAVINGS AND LOAN HOLDING COMPANY LAW. Golden West is a "savings and loan
holding company" under the HomeOwners' Loan Act (HOLA). As such, it has
registered with the OTS and is subject to OTS regulation and OTS and FDIC
examination, supervision, and reporting requirements. Among other things, the
OTS has authority to determine that an activity of a savings and loan holding
company constitutes a serious risk to the financial safety, soundness, or
stability of its subsidiary savings institutions and thereupon may impose, among
other things, restrictions on the payment of dividends by the subsidiary
institutions and on transactions between the subsidiary institutions, the
holding company, and subsidiaries or affiliates of either.
As WSB's parent company, Golden West is considered an "affiliate" of WSB,
for regulatory purposes. Savings banks are subject to the rules relating to
transactions with affiliates and loans to insiders generally applicable to
commercial banks that are members of the Federal Reserve System set forth in
Sections 23A, 23B, and 22(h) of the Federal Reserve Act, and with respect to
savings banks, as well as additional limitations set forth in current law and as
adopted by the OTS. In addition, current law generally prohibits a savings
institution from lending or otherwise extending credit to an affiliate, other
than the institution's subsidiaries, unless the affiliate is engaged only in
activities that the Federal Reserve Board has determined to be permissible for
bank holding companies and that the OTS has not disapproved. OTS regulations
provide guidance in determining affiliates of a savings institution and in
calculating compliance with the quantitative limitations on transactions with
affiliates.
QTL TEST. The HOLA requires savings institutions to meet a qualified thrift
lender (QTL) test. Under the QTL test, a savings institution is required to
maintain at least 65% of its "portfolio assets" in certain "qualified thrift
investments" (primarily residential mortgages and related investments, including
certain mortgage-backed and related securities) in at least nine months out of
each 12 month period. A savings institution that fails the QTL test must either
convert to a bank charter or operate under certain restrictions. At December 31,
2000, WSB and WTX were in compliance with the QTL test.
TAXATION. The Company files consolidated federal income tax returns with
its subsidiaries. The provision for federal and state taxes on income is based
on taxes currently payable and taxes expected to be payable in the future as a
result of events that have been recognized in the financial statements or tax
returns.
The Company utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. For financial
reporting purposes only, the Company uses "purchase accounting" in connection
with certain assets acquired through mergers. The purchase accounting portion of
income is not subject to tax.
Employee Relations
The Company had a total of 5,088 full-time and 1,015 permanent part-time
employees at December 31, 2000. None of the employees of the Company are
represented by any collective bargaining group. The management of the Company
considers employee relations to be good.
ITEM 2. PROPERTIES
Properties owned by the Company are located in Arizona, California,
Colorado, Florida, Illinois, Kansas, New Jersey, and Texas. The executive
offices of the Company are located at 1901 Harrison Street, Oakland, California,
in leased facilities.
The Company owns a 450,000 square-foot office complex on a 111-acre site in
San Antonio, Texas. This complex houses the Loan Service, Savings Operations,
Information Systems Departments, and various other back-office functions.
The Company owns 213 of its branches, some of which are located on leased
land. For further information regarding the Company's investment in premises and
equipment and expiration dates of long-term leases, see Note I to the Financial
Statements included in Item 14.
The Company continuously evaluates the suitability and adequacy of the
offices of the Company and has a program of relocating or remodeling them as
necessary to maintain efficient and attractive facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to actions arising in the
ordinary course of business, none of which, in the opinion of management, is
material to the Company's consolidated financial condition or results of
operations, or is otherwise required to be discussed pursuant to Item 103 of
Regulation S-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Market Prices of Stock
Golden West's stock is listed on the New York Stock Exchange and Pacific
Stock Exchange and traded on the Boston and Chicago Stock Exchanges under the
ticker symbol GDW. The quarterly price ranges for the Company's common stock
during 2000 and 1999 were as follows:
TABLE 37
Common Stock Price Range
2000 1999
---------------------------- -----------------------------
First Quarter $27.19 - $32.50 $29.27 - $34.52
Second Quarter $30.38 - $46.00 $30.64 - $34.95
Third Quarter $41.81 - $53.63 $30.27 - $33.56
Fourth Quarter $50.50 - $69.44 $31.25 - $38.02
Per Share Cash Dividends Data
Golden West's cash dividends paid per share for 2000 and 1999 were as
follows:
TABLE 38
Cash Dividends Per Share
2000 1999
------------ -----------
First Quarter $ .0525 $ .0467
Second Quarter $ .0525 $ .0467
Third Quarter $ .0525 $ .0467
Fourth Quarter $ .0625 $ .0525
The principal sources of funds for the payment by Golden West of cash
dividends are cash dividends paid to it by WSB.
WSB and WTX may pay capital distributions during a calendar year, without
notice or application to the OTS, equal to net income for the applicable
calendar year plus retained net income for the two prior calendar years. WSB and
WTX must file applications for approval of a proposed distribution, if (i) they
are not eligible for expedited application processing, (ii) they would not be at
least adequately capitalized following the capital distribution, or (iii) they
would violate a prohibition contained in any applicable statute, regulation, or
agreement with the OTS or the FDIC, or would violate a condition of OTS approval
by making the proposed distribution. In addition, the regulations require
30-days advance notice to be filed for proposed capital distributions that would
result in the savings association being less than well-capitalized or that
involve the reduction or retirement of the savings association's stock. (See
"CAPITAL DISTRIBUTIONS BY SAVINGS ASSOCIATIONS" on page 35.)
At December 31, 2000, $1.5 billion of the WSB's retained earnings were
available for the payment of cash dividends without the imposition of additional
federal income taxes.
Stockholders
At the close of business on March 19, 2001, 158,554,007 shares of Golden
West's Common Stock were outstanding and were held by 1,262 stockholders of
record. At the close of business on March 19, 2001, the Company's common stock
price was $58.25.
The transfer agent and registrar for the Golden West common stock is Mellon
Investor Services LLC, San Francisco, California 94101.
The Securities and Exchange Commission (Commission) maintains a web site,
which contains reports, proxy and information statements, and other information
pertaining to registrants that file electronically with the Commission including
Golden West. The address is: http://www.sec.gov.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and other
data for Golden West for the years indicated. Such information is qualified in
its entirety by the more detailed financial information set forth in the
financial statements and notes thereto appearing in documents incorporated
herein by reference.
TABLE 39
Five Year Consolidated Summary of Operations
(Dollars in Thousands Except Per Share Figures)
Year Ended December 31
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- ------------- ------------- ------------- --------------
Interest Income:
Interest on loans $2,469,556 $1,851,790 $2,254,427 $2,392,175 $2,203,752
Interest on mortgage-backed securities 1,072,559 769,314 498,319 282,499 246,293
Interest on dividends and investments 254,425 204,741 209,807 157,823 131,516
-------------- ------------- ------------- ------------- --------------
3,796,540 2,825,845 2,962,553 2,832,497 2,581,561
Interest Expense:
Interest on deposits 1,494,447 1,250,364 1,285,343 1,209,646 1,061,414
Interest on advances and other borrowings 1,150,925 571,996 709,888 732,356 689,187
-------------- ------------- ------------- ------------- --------------
2,645,372 1,822,360 1,995,231 1,942,002 1,750,601
-------------- ------------- ------------- ------------- --------------
Net interest income 1,151,168 1,003,485 967,322 890,495 830,960
Provision for (recovery of) loan losses 9,195 (2,089) 11,260 57,609 84,256
-------------- ------------- ------------- ------------- --------------
Net interest income after provision for
(recovery of) loan losses 1,141,973 1,005,574 956,062 832,886 746,704
Noninterest Income:
Fees 78,016 65,456 62,820 45,910 38,558
Gain on the sale of securities,
MBS, and loans 10,515 22,764 38,784 8,197 11,954
Other 72,289 55,082 36,009 27,161 24,387
-------------- ------------- ------------- ------------- --------------
160,820 143,302 137,613 81,268 74,899
Noninterest Expense
General and administrative expenses
Personnel 243,787 215,483 196,153 180,917 163,243
Occupancy 72,355 67,015 62,549 55,508 50,171
Deposit insurance 5,699 5,358 5,925 7,454 167,528
Advertising 8,450 11,928 10,412 11,525 9,277
Other 94,556 86,363 79,468 71,555 63,203
-------------- ------------- ------------- ------------- --------------
424,847 386,147 354,507 326,959 453,422
-------------- ------------- ------------- ------------- --------------
Earnings before taxes on income 877,946 762,729 739,168 587,195 368,181
Taxes on income 332,155 282,750 292,077 233,057 (1,732)
-------------- ------------- ------------- ------------- --------------
Earnings before cumulative effect of change
in accounting for goodwill and extraordinary
item 545,791 479,979 447,091 354,138 369,913
Cumulative effect of change in accounting
for goodwill -0- -0- -0- -0- (205,242)
Extraordinary item -0- -0- (12,511) -0- -0-
-------------- ------------- ------------- ------------- --------------
Net earnings $ 545,791 $ 479,979 $ 434,580 $ 354,138 $ 164,671
============== ============= ============= ============= ==============
Basic earnings per share before cumulative
effect of change in accounting for goodwill
and extraordinary item $ 3.44 $ 2.90 $ 2.60 $ 2.07 $ 2.13
Cumulative effect of change in accounting
for goodwill 0.00 0.00 0.00 0.00 (1.18)
Extraordinary item 0.00 0.00 (.07) 0.00 0.00
-------------- ------------- ------------- ------------- --------------
Basic earnings per share $ 3.44 $ 2.90 $ 2.53 $ 2.07 $ 0.95
============== ============= ============= ============= ==============
Diluted earnings per share before cumulative
effect of change in accounting for goodwill
and extraordinary item $ 3.41 $ 2.87 $ 2.58 $ 2.04 $ 2.09
Cumulative effect of change in accounting
for goodwill 0.00 0.00 0.00 0.00 (1.16)
Extraordinary item 0.00 0.00 (.07) 0.00 0.00
-------------- ------------- ------------- ------------- --------------
Diluted earnings per share $ 3.41 $ 2.87 $ 2.51 $ 2.04 $ 0.93
============== ============= ============= ============= ==============
TABLE 40
Five Year Summary of Financial Condition
(Dollars in Thousands)
At December 31
-------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- ------------------ ------------------ ----------------- ------------------
Assets $55,703,969 $42,142,205 $38,468,729 $39,590,271 $37,730,598
Cash, securities available for sale,
And other investments 1,111,826 1,120,393 1,050,265 1,033,433 2,078,876
Mortgage-backed securities 18,580,490 11,661,621 10,031,965 3,939,746 4,293,582
Loans receivable 33,762,643 27,919,817 25,721,288 33,260,709 30,113,421
-------------- ------------------ ------------------ ----------------- ------------------
Total loan portfolio 52,343,133 39,581,438 35,753,253 37,200,455 34,407,003
Deposits 30,047,919 27,714,910 26,219,095 24,109,717 22,099,934
Advances from FHLBs 19,731,797 8,915,218 6,163,472 8,516,605 8,798,433
Securities sold under agreements to
repurchase and other borrowings 857,274 1,045,176 1,252,469 2,334,048 1,908,126
Medium-term notes -0- -0- -0- 109,992 589,845
Subordinated debt 598,791 812,950 911,753 1,110,488 1,323,996
Stockholders' equity 3,687,287 3,194,854 3,124,318 2,698,031 2,350,477
TABLE 41
Five Year Selected Other Data
(Dollars in Thousands Except Per Share Figures)
Year Ended December 31
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- -------------- ------------- ------------- -------------
New real estate loans originated $19,782,687 $12,672,211 $8,187,934 $7,482,973 $7,012,562
Fully indexed rate on new real estate loans 8.24% 7.60% 7.72% 7.59% 7.59%
Current rate on new real estate loans(a) 6.18% 5.97% 6.20% 6.42% 6.56%
New adjustable rate mortgages as a percentage 96.27% 91.00% 82.26% 95.05% 90.07%
of new real estate loans originated
Deposits increase ($) $ 2,333,009 $ 1,495,815 $2,109,378 $2,009,783 $1,252,024
Deposits increase (%) 8.4% 5.7% 8.7% 9.1% 6.0%
Net earnings/average net worth (ROE) 16.21% 15.19% 14.94%(b) 14.14% 7.46% (c)
Net earnings/average assets (ROA) 1.12% 1.22% 1.11%(b) .91% .46% (c)
General and administrative expense(G&A) to:
Net interest income plus other income 32.38% 33.67% 32.08% 33.64% 50.05% (c)
Total revenues 10.74% 13.01% 11.44%(b) 11.22% 17.07% (c)
Average assets .87% .98% .90% .84% 1.26% (c)
Ratio of earnings to fixed charges: (d)
Including interest on deposits 1.33x 1.42x 1.37x 1.30x 1.21x
Excluding interest on deposits 1.76x 2.32x 2.03x 1.79x 1.53x
Yield on loan portfolio 8.05% 7.16% 7.36% 7.53% 7.43%
Yield on MBS 7.98% 7.17% 7.20% 7.23% 7.13%
Yield on investments 7.12% 5.88% 5.53% 6.48% 6.88%
Yield on earning assets 8.02% 7.15% 7.30% 7.48% 7.37%
Cost of deposits 5.52% 4.69% 4.67% 5.04% 4.98%
Cost of borrowings 6.66% 5.77% 5.87% 5.99% 5.80%
Cost of funds 5.99% 5.00% 4.96% 5.36% 5.28%
Spread 2.03% 2.15% 2.34% 2.12% 2.09%
Nonperforming asset/total assets (e) .43% .56% .79% .96% 1.21%
Stockholders' equity/total assets 6.62% 7.58% 8.12% 6.81% 6.23%
Average stockholders' equity/average assets 6.89% 8.04% 7.41% 6.45% 6.15%
World Savings Bank, FSB (WSB)
regulatory capital ratios: (f)
Tangible capital 6.60% 6.64% 6.77% 6.51% 6.69%
Core capital 6.60% 6.64% 6.77% 6.51% 6.69%
Risk-based capital 12.44% 11.95% 12.93% 12.80% 13.14%
World Savings Bank, FSB Texas (WTX)
regulatory capital ratios: (f)
Tangible capital 5.34% --- --- --- ---
Core capital 5.34% --- --- --- ---
Risk-based capital 26.69% --- --- --- ---
Number of savings branch offices 253 249 248 250 244
Cash dividends per share $ .22 $ .193 $ .172 $ .152 $ .132
Dividend payout ratio 6.40% 6.64% 6.79% (b) 7.32% 13.91%
(a) The current rate reflects the actual rate being paid by the borrower at
time of origination.
(b) The ratios for the year ended December 31, 1998 include an extraordinary
charge of $21 million before tax, or $.07 per basic and diluted earnings
per share, net of tax benefit, associated with the prepayment of FHLB
advances and include a nonrecurring gain of $13 million before tax, or $.05
per basic and diluted earnings per share, after tax, realized when
preferred stock purchased at a discount was redeemed by the issuer at par.
Excluding the extraordinary item, ROE was 15.37%, ROA was 1.14%, and the
dividend payout ratio was 6.59%. Excluding the one-time stock gain, G&A to
total revenues was 11.48%.
(c) The numbers for the year ended December 31, 1996 include the 1996 SAIF
assessment of $133 million, the special tax credit of $139 million, and the
$205 million cumulative effect of the change in accounting for goodwill.
The ratios for the year ended December 31, 1996, excluding the three 1996
nonrecurring items are: ROE 13.97%, ROA .86%, G&A to net interest income
plus other income 34.32%, G&A to total revenues 12.08%, and G&A to average
assets .89%.
(d) Earnings represent income from continuing operations before income taxes,
cumulative effect of change in accounting, extraordinary item, and fixed
charges. Fixed charges include interest expense and amortization of debt
expense.
(e) NPAs includes nonaccrual loans (loans that are 90 days or more past due)
and foreclosed real estate.
(f) For regulatory purposes, the requirements to be considered "well
capitalized" are 5.0% and 10.0% for core and risk-based capital,
respectively. In years prior to 2000, WTX was not regulated by the OTS and,
therefore, these ratios were not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The table below sets forth Golden West Financial Corporation's (Golden West
or Company) net earnings for the three years ended December 31, 2000, 1999, and
1998.
TABLE 42
Golden West Net Earnings, Basic Earnings Per Share,
and Diluted Earnings Per Share
1998-2000
(Dollars in Thousands Except Per Share Figures)
For the Year Ended December 31
------------------------------------------
2000 1999 1998
----------- ----------- -----------
Earnings before extraordinary item (a)(b) $ 545,791 $ 479,979 $ 447,091
Extraordinary item (c) -0- -0- (12,511)
----------- ----------- -----------
Net Earnings $ 545,791 $ 479,979 $ 434,580
=========== =========== ===========
Basic earnings per share
before extraordinary item (a)(b) $ 3.44 $ 2.90 $ 2.60
Extraordinary item (c) 0.00 0.00 (.07)
----------- ----------- -----------
Basic earnings per share $ 3.44 $ 2.90 $ 2.53
=========== =========== ===========
Diluted earnings per share
before extraordinary item (a)(b) $ 3.41 $ 2.87 $ 2.58
Extraordinary item (c) 0.00 0.00 (.07)
----------- ----------- -----------
Diluted earnings per share $ 3.41 $ 2.87 $ 2.51
=========== =========== ===========
(a) 1999 includes a nonrecurring gain of $8 million or $.03 per basic and
diluted share, after tax, from the sale of four savings branches and a
nonrecurring tax benefit of $3 million or $.02 per basic and diluted share,
from the donation of land to a non-profit organization.
(b) 1998 includes a nonrecurring gain of $13 million or $.05 per basic and
diluted earnings per share, after tax, realized when preferred stock
purchased at a discount was redeemed by the issuer at par.
(c) Penalties resulting from the prepayment of Federal Home Loan Bank of San
Francisco advances during 1998. See "Extraordinary Item" section on page
65.
Golden West's principal subsidiary is World Savings Bank, FSB (WSB). WSB is
headquartered in Oakland, California. At December 31, 2000, WSB had $56 billion
in assets. At December 31, 2000, Golden West had a savings network of 120
branches in California, 37 in Florida, 36 in Colorado, 22 in Texas, 15 in
Arizona, 11 in New Jersey, eight in Kansas, and four in Illinois. By virtue of
being federally chartered, WSB can originate mortgages anywhere in the nation,
even though they may not be authorized to conduct deposit gathering business in
those jurisdictions. In addition to the states with savings operations
referenced above, the Company had lending operations in Connecticut, Delaware,
Georgia, Idaho, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Minnesota,
Missouri, Nevada, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, Rhode
Island, South Dakota, Tennessee, Utah, Virginia, Washington, and Wisconsin.
The savings accounts offered by WSB are insured by the Federal Deposit
Insurance Corporation (FDIC). The FDIC administers two separate funds, the Bank
Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF). The BIF
is a deposit insurance fund for commercial banks, federally chartered savings
banks, and some state chartered savings banks. The SAIF is a deposit insurance
fund for most savings associations. WSB is a member of the BIF, but a portion of
WSB's deposits are insured through the SAIF.
Two other subsidiaries of Golden West are Atlas Advisers, Inc., and Atlas
Securities, Inc. These two companies were formed to provide services to Atlas
Assets, Inc., a series open-ended registered investment company sponsored by the
Company. Atlas Advisers, Inc., is an investment adviser to the Atlas family of
mutual funds and Atlas Securities, Inc., is the distributor of the Atlas mutual
funds and annuities.
During the fourth quarter of 2000, World Savings Bank, SSB (WSSB), a wholly
owned subsidiary of Golden West, received approval to change from a Texas state
savings bank regulated by the FDIC to a federally chartered savings bank
regulated by the Office of Thrift Supervision (OTS). WSSB's new name as a result
of this change is World Savings Bank, FSB Texas (WTX). On December 1, 2000,
Golden West contributed WTX to WSB and WTX became a wholly owned subsidiary of
WSB. In addition, on December 31, 2000, World Savings and Loan Association, a
wholly owned subsidiary of Golden West, was merged into WSB.
The following narrative focuses on the significant financial statement
changes that have taken place at Golden West over the past three years and
includes a discussion of the Company's financial condition, results of
operations, and liquidity and capital resources.
Financial Condition
The following table summarizes the Company's major asset, liability, and
equity components in percentage terms at yearends 2000, 1999, 1998, and 1997. As
the table shows, the largest asset component is the loan portfolio (including
mortgage-backed securities), which consists primarily of long-term mortgages.
Deposits represent the majority of the Company's liabilities.
TABLE 43
Asset, Liability, and Equity Components as
Percentages of the Total Balance Sheet
1997 - 2000
December 31
-----------------------------------------------------
2000 1999 1998 1997
---------- ---------- ----------- ----------
Assets:
Cash and investments 2.0% 2.7% 2.7% 2.6%
Loans receivable including
mortgage-backed securities 94.0 93.9 93.0 94.0
Other assets 4.0 3.4 4.3 3.4
---------- ---------- ----------- ----------
100.0% 100.0% 100.0% 100.0%
========== ========== =========== ==========
Liabilities and Stockholders' Equity:
Deposits 54.0% 65.8% 68.1% 60.9%
FHLB advances 35.4 21.2 16.0 21.5
Securities sold under
agreements to repurchase 1.5 2.5 3.3 5.9
Medium-term notes 0.0 0.0 0.0 0.3
Subordinated notes 1.1 1.9 2.4 2.8
Other liabilities 1.4 1.0 2.1 1.8
Stockholders' equity 6.6 7.6 8.1 6.8
---------- ---------- ----------- ----------
100.0% 100.0% 100.0% 100.0%
========== ========== =========== ==========
Asset/Liability Management
The Company's earnings depend primarily on its net interest income, which
is the difference between the amounts it receives from interest earned on loans,
MBS, and investments and the amounts it pays in interest on deposits and
borrowings. Therefore, the Company's profitability is largely dependent upon its
ability to manage interest rate risk and credit risk (see "Asset Quality"
section on page 54). The Company mitigates its credit risk through strict
underwriting standards and loan reviews. The Company manages interest rate risk
by managing the repricing of interest-rate-sensitive assets and liabilities. The
Company enters into interest rate swaps as part of its interest rate risk
management strategy. Such instruments are entered into solely to alter the
repricing characteristics of designated assets and liabilities.
One measure of exposure to interest rate risk is the repricing gap, the
difference between the repricing of assets and liabilities. The Company is
subject to interest rate risk to the extent its assets and liabilities reprice
at different times. The disparity between the repricing (maturity, prepayment,
or interest rate change) of mortgage loans and investments and the repricing of
deposits and borrowings can have a material impact on the Company's results of
operations. The following table shows the Company's repricing gap at December
31, 2000:
TABLE 44
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of December 31, 2000
(Dollars in Millions)
Projected Repricing(a)
--------------------------------------------------------------------------
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
----------- ----------- ----------- ----------- -----------
Interest-Earning Assets:
Investments $ 751 $ -0- $ 3 $ 7 $ 761
Mortgage-backed securities 17,289 138 569 585 18,581
Loans receivable:
Rate-sensitive 30,501 1,542 232 -0- 32,275
Fixed-rate 30 87 374 899 1,390
Other (b) 1,345 -0- -0- -0- 1,345
Impact of interest rate swaps 381 240 (621) -0- -0-
----------- ----------- ----------- ----------- -----------
Total $ 50,297 $ 2,007 $ 557 $ 1,491 $ 54,352
=========== =========== =========== =========== ===========
Interest-Bearing Liabilities:
Deposits (c) $ 16,079 $ 11,765 $ 2,173 $ 31 $ 30,048
FHLB advances 18,000 1,300 109 323 19,732
Other borrowings 857 -0- 599 -0- 1,456
Impact of interest rate swaps 191 (88) (103) -0- -0-
----------- ----------- ----------- ----------- -----------
Total $ 35,127 $ 12,977 $ 2,778 $ 354 $ 51,236
=========== =========== =========== =========== ===========
Repricing gap $ 15,170 $(10,970) $(2,221) $ 1,137 $ 3,116
=========== =========== =========== =========== ===========
Cumulative gap $ 15,170 $ 4,200 $ 1,979 $ 3,116
=========== =========== =========== ===========
Cumulative gap as a percentage of
total assets 27.2% 7.5% 3.6%
=========== =========== ===========
(a) Based on scheduled maturity or scheduled repricing; loans and MBS reflect
scheduled repayments and projected prepayments of principal based on
current rates of prepayment.
(b) Includes cash in banks and FHLB stock.
(c) Liabilities with no maturity date, such as checking, passbook, and money
market deposit accounts, are assigned zero months.
The gap table shows that, as of December 31, 2000, the Company's assets
reprice sooner than its liabilities. If all repricing assets and liabilities
responded equally to changes in the interest rate environment, then the gap
analysis would suggest that Golden West's earnings would rise when interest
rates increase and would fall when interest rates decrease. However, Golden
West's earnings are also affected by the built-in reporting and repricing lags
inherent in the Eleventh District Cost of Funds Index (COFI), which is the
benchmark the Company uses to determine the rate on the majority of its
adjustable rate mortgages (ARMs). The reporting lag occurs because of the time
it takes to gather the data needed to compute the index. As a result, the COFI
in effect in any month actually reflects the Eleventh District's cost of funds
at the level it was two months prior. The repricing lag occurs because COFI is
based on a portfolio of accounts, not all of which reprice immediately.
Therefore, COFI does not initially fully reflect a change in market interest
rates. Consequently, when the interest rate environment changes, the COFI lags
cause assets to initially reprice more slowly than liabilities, enhancing
earnings when rates are falling and holding down income when rates rise.
Additionally, the Company originates loans that are tied to the Golden West Cost
of Savings Index (COSI). The COSI in effect in any month reflects the actual
Golden West Cost of Savings at the level it was one month prior.
In addition to the index lags, other elements of ARM loans also have an
impact on earnings. These elements are introductory fixed rates on new ARM
loans, the interest rate adjustment frequency of ARM loans, interest rate caps
or limits on individual rate changes, and interest rate floors. Partially
offsetting the impact of the index lags are similar lags on a portion of the
Company's liabilities. On balance, the index lags and ARM structural features
cause the Company's assets initially to reprice more slowly than its
liabilities, resulting in a temporary reduction in net interest income when
rates increase and a temporary increase in net interest income when rates fall.
The table below reflects the Company's expected cash flows and applicable
yields on the balances of its interest-sensitive assets and liabilities as of
December 31, 2000, and takes into consideration expected prepayments of the
Company's long-term assets (primarily mortgage-backed securities and loans
receivable) and the estimated current fair value.
TABLE 45
Summary of Market Risk on Financial Instruments
As of December 31, 2000
(Dollars in Millions)
Expected Maturity Date as of December 31, 2000
------------------------------------------------------------------------------------------
2006 & Total Fair
2001 2002 2003 2004 2005 Thereafter Balance Value
--------- --------- ---------- --------- ---------- ----------- --------- ---------
Interest-Sensitive Assets:
Investments $ 751 $ 1 $ -0- $ -0- $ 2 $ 7 $ 761 $ 761
Weighted average interest rate 7.17% 4.86% 0.00% 0.00% 5.58% 5.48% 7.12%
MBS
Fixed-Rate $ 204 $ 168 $ 135 $ 115 $ 98 $ 618 $ 1,338 1,354
Weighted average interest rate 8.18% 8.11% 8.09% 8.04% 8.00% 7.82% 7.97%
Variable Rate $ 3,444 $ 2,882 $ 2,184 $ 1,688 $ 1,358 $ 5,686 $17,242 17,111
Weighted average interest rate 7.99% 7.99% 7.99% 7.99% 7.99% 7.97% 7.99%
Loans Receivable
Fixed-Rate $ 401 $ 207 $ 157 $ 125 $ 101 $ 553 $ 1,544 1,567
Weighted average interest rate 10.13% 9.92% 9.79% 9.58% 9.38% 8.62% 9.43%
Variable Rate $ 6,395 $ 5,246 $ 4,038 $ 3,058 $ 2,482 $ 11,000 $32,219 32,263
Weighted average interest rate(a) 8.41% 8.45% 8.45% 8.43% 8.42% 8.39% 8.03%
--------- --------- ---------- --------- ---------- ----------- --------- ---------
Total $11,195 $ 8,504 $ 6,514 $ 4,986 $ 4,041 $ 17,864 $53,104 $53,056
========= ========= ========== ========= ========== =========== ========= =========
Interest-Sensitive Liabilities:
Deposits (b) $27,844 $ 1,478 $ 365 $ 69 $ 260 $ 32 $30,048 $30,158
Weighted average interest rate 5.47% 6.04% 6.15% 5.40% 6.67% 5.40% 5.52%
FHLB Advances
Fixed-Rate $ 1,533 $ 46 $ 117 $ 26 $ 21 $ 189 $ 1,932 2,131
Weighted average interest rate 6.61% 7.02% 6.82% 6.68% 6.80% 6.78% 6.65%
Variable Rate $ 3,100 $ 5,000 $ 6,700 $ 1,000 $ 1,500 $ 500 $17,800 17,767
Weighted average interest rate 6.65% 6.70% 6.63% 6.70% 6.54% 6.74% 6.65%
Reverse Repurchase Agreements
Variable Rate $ 657 $ 200 $ -0- $ -0- $ -0- $ -0- $ 857 857
Weighted average interest rate 6.52% 6.71% 0.00% 0.00% 0.00% 0.00% 6.56%
Subordinated Notes $ -0- $ 399 $ 200 $ -0- $ -0- $ -0- $ 599 601
Weighted average interest rate 0.00% 7.70% 6.10% 0.00% 0.00% 0.00% 7.17%
--------- --------- ---------- --------- ---------- ----------- --------- ---------
Total $33,134 $ 7,123 $ 7,382 $ 1,095 $ 1,781 $ 721 $51,236 $51,514
========= ========= ========== ========= ========== =========== ========= =========
Off-Balance Sheet Items:
Interest Rate Swaps
Receive Fixed Swaps $ 114 $ 12 $ 91 $ -0- $ -0- $ -0- $ 217 $ 1
Weighted average receive rate 6.35% 6.52% 6.39% 0.00% 0.00% 0.00% 6.37%
Weighted average pay rate 6.77% 6.67% 6.86% 0.00% 0.00% 0.00% 6.80%
Pay Fixed Swaps $ 96 $ 305 $ 212 $ 104 $ -0- $ -0- $ 717 (11)
Weighted average receive rate 6.83% 6.76% 6.80% 6.78% 0.00% 0.00% 6.78%
Weighted average pay rate 8.13% 7.54% 6.26% 6.65% 0.00% 0.00% 7.11%
--------- --------- ---------- --------- ---------- ----------- --------- ---------
Total $ 210 $ 317 $ 303 $ 104 $ -0- $ -0- $ 934 $ (10)
========= ========= ========== ========= ========== =========== ========= =========
(a) The total weighted average interest rate for variable loans receivable
reflects loans with introductory rates in effect at December 31, 2000.
Those loans are assumed to mature outside the introductory period at
fully-indexed rates (the fully-indexed rate is equal to the effective index
plus the loan margin). Consequently, the weighted average rate of all
maturing variable rate loans will not equal the weighted average rate of
total variable rate loans at December 31, 2000 as indicated in the total
balance column.
(b) Deposits with no maturity are included in the 2001 column.
Golden West estimates the sensitivity of the Company's net interest income,
net earnings, and capital ratios to interest rate changes and anticipated growth
based on simulations using an asset/liability model which takes into account the
lags previously described. The simulation model projects net interest income,
net earnings, and capital ratios based on interest rate increases or decreases
that are sustained for a thirty-six month period. The model is based on the
actual maturity and repricing characteristics of interest-rate sensitive assets
and liabilities. For certain assets, the model incorporates assumptions
regarding the impact of changing interest rates on prepayment rates, which are
based on the Company's historical prepayment information. The model factors in
projections for anticipated activity levels by product lines offered by the
Company. Based on the information and assumptions in effect at December 31,
2000, Management believes that a 200 basis point rate increase sustained over a
thirty-six month period would not adversely affect the Company's long-term
profitability and financial strength.
Cash and Investments
Golden West's investment portfolio is composed primarily of federal funds,
short-term repurchase agreements collateralized by mortgage-backed securities,
short-term money market securities, United States government obligations,
collateralized mortgage obligations, and corporate bonds. In determining the
amounts of assets to invest in each class of investments, the Company considers
relative rates, liquidity, and credit quality.
The Office of Thrift Supervision (OTS) requires insured institutions, such
as WSB, to maintain a minimum amount of cash and certain qualifying investments
for liquidity purposes. The current minimum requirement is to maintain a minimum
amount of liquid assets in the form of cash and securities approved by federal
regulations at either 4% of the quarterly average of daily balances of
short-term deposits and borrowings or 4% of the prior quarter's ending balance
of short-term deposits and borrowings. At December 31, 2000, 1999, and 1998, WSB
had liquidity in excess of the regulatory requirements. WTX also met the
applicable requirements during the periods under discussion.
At December 31, 2000, and 1999, the Company had securities available for
sale in the amount of $393 million and $319 million, respectively, including net
unrealized gains on securities available for sale of $382 million and $260
million, respectively. At December 31, 2000 and 1999, the Company had no
securities classified as trading in its investment securities portfolio.
Loans Receivable and Mortgage-Backed Securities
The Company invests primarily in whole loans. From time to time, the
Company securitizes loans from its portfolio into mortgage-backed securities
(MBS) and Real Estate Mortgage Investment Conduit Securities (MBS-REMICs). MBS
and MBS-REMICs are available to be used as collateral for borrowings. At
December 31, 2000 and 1999, the balance of loans receivable including
mortgage-backed securities was $52.3 billion and $39.6 billion, respectively.
Included in the $52.3 billion at December 31, 2000 was $7.8 billion of Federal
National Mortgage Association (FNMA) mortgage-backed securities with the
underlying loans subject to full credit recourse to the Company, $10.4 billion
of MBS-REMICs, and $456 million of purchased MBS. Included in the $39.6 billion
at December 31, 1999 was $3.9 billion of FNMA mortgage-backed securities with
the underlying loans subject to full credit recourse to the Company, $7.2
billion of MBS-REMICs, and $514 million of purchased MBS.
The loan portfolio, including MBS, grew $12.8 billion or 32% for the year
ended December 31, 2000. The balance of the loan portfolio increased by $3.8
billion or 11% for the year ended December 31, 1999. Loan portfolio repayments
were $6.9 billion, $7.7 billion, and $8.3 billion for the years ended December
31, 2000, 1999, and 1998, respectively. Loan portfolio repayments were lower in
2000 and in 1999 as compared to 1998 due to a decrease in the prepayment rate.
Mortgage-Backed Securities
At December 31, 2000 and 1999, the Company had MBS held to maturity in the
amount of $18.5 billion and $11.6 billion, respectively. The increase in MBS in
2000 was due to the securitization of $4.8 billion of adjustable rate mortgages
(ARMs) into FNMA MBS and the securitization of $4.6 billion of ARMs in
MBS-REMICs. During 1999, the Company securitized $1.1 billion of adjustable rate
mortgages into FNMA MBS and securitized $3.7 billion of mortgage loans into
MBS-REMICs. The FNMA MBS and the MBS-REMICs are available to be used as
collateral for borrowings. The Company has the ability and intent to hold these
MBS until maturity and, accordingly, these MBS are classified as held to
maturity.
At December 31, 2000 and 1999, the Company had MBS available for sale in
the amount of $70 million and $79 million, respectively, including net
unrealized gains on mortgage-backed securities available for sale of $1 million
and $1 million, respectively. At December 31, 2000 and 1999, the Company had no
trading MBS.
At December 31, 2000, $17.2 billion of the Company's total MBS portfolios
were backed by ARMs. The percentage of MBS backed by ARMs was 93% at yearend
2000 compared to 87% at yearend 1999 and 94% at yearend 1998. The large amount
of adjustable rate MBS is mainly due to the large amount of ARM loans
securitized in the last five years.
Repayments of MBS during the years 2000, 1999, and 1998 amounted to $2.5
billion, $2.8 billion, and $2.1 billion, respectively. MBS repayments were lower
in 2000 due to a decrease in the prepayment rate. MBS repayments were higher in
1999 due to an increase in total MBS outstanding.
Loans
New loan originations in 2000, 1999, and 1998 amounted to $19.8 billion,
$12.7 billion, and $8.2 billion, respectively. The record high volume of
originations during 2000 was due to a strong demand for adjustable rate loans,
the Company's primary product. The increase in 1999 was due to renewed demand
for adjustable rate loans as interest rates moved up and the cost of fixed-rate
loans increased. In addition, the Company increased the size of its loan
origination staff to take advantage of favorable market conditions. Refinanced
loans constituted 34% of new loan originations in 2000 compared to 40% in 1999
and 44% in 1998.
Loans originated for sale were $241 million, $793 million, and $1.2 billion
for the years ended December 31, 2000, 1999, and 1998, respectively. The
reduction in loans originated for sale in 2000 and in 1999 as compared to 1998
was attributable to the decrease in fixed-rate originations. During 2000, 1999,
and 1998, $29 million, $522 million, and $229 million, respectively, of loans
were converted at the customer's request from adjustable rate to fixed-rate. The
Company continues to sell most of its new and converted fixed-rate loans. The
Company sold $350 million, $1.2 billion, and $1.4 billion of loans during 2000,
1999, and 1998, respectively.
At December 31, 2000, the Company had lending operations in 32 states. The
largest source of mortgage origination is loans secured by residential
properties in California. In 2000, 63% of total loan origination volume was on
residential properties in California, compared to 63% and 62% in 1999 and 1998,
respectively. The five largest states, other than California, for originations
for the year ended December 31, 2000, were Florida, New Jersey, Texas,
Washington, and Illinois with a combined total of 19% of total originations. The
percentage of the total loan portfolio (including MBS with recourse and
MBS-REMICs) that was comprised of residential loans in California was 63% at
December 31, 2000, 64% at December 31, 1999, and 66% at December 31, 1998.
Golden West continues to emphasize adjustable rate mortgages--loans with
interest rates that change monthly in accordance with movements in specified
indexes. The portion of the mortgage portfolio (including MBS and MBS-REMICs)
composed of rate-sensitive loans was 95% at yearend 2000 compared to 93% at
yearend 1999 and 92% at yearend 1998. Golden West's ARM originations constituted
approximately 96% of new mortgage loans made by the Company in 2000, compared
with 91% in 1999 and 82% in 1998.
Golden West originates ARMs tied to a variety of indexes, principally the
Golden West Cost of Savings Index (COSI), the Eleventh District Cost of Funds
Index (COFI), and the twelve-month rolling average of the One-Year U.S. Treasury
Constant Maturity (TCM). The following table shows the distribution of ARM
originations by index for the years ended December 31, 2000 and 1999.
TABLE 46
Adjustable Rate Mortgage Originations by Index
1999 - 2000
(Dollars in Thousands)
ARM Index 2000 1999
--------- ------------------- -------------------
COSI $12,872,834 $ 7,996,477
COFI 5,701,413 3,264,773
TCM 470,171 270,651
------------------- -------------------
$19,044,418 $11,531,901
=================== ===================
The following table shows the distribution by index of the Company's
outstanding balance of adjustable rate mortgages (including ARM MBS with
recourse and ARM MBS-REMICs) at December 31, 2000 and 1999.
TABLE 47
Adjustable Rate Mortgage Portfolio by Index
(Including ARM MBS with recourse and ARM MBS-REMICs)
1999 - 2000
(Dollars in Thousands)
ARM Index 2000 1999
--------- ------------------- -------------------
COSI $20,460,242 $ 9,182,829
COFI 27,405,401 26,217,670
TCM 1,457,232 1,266,541
Other 182,778 152,470
------------------- -------------------
$49,505,653 $36,819,510
=================== ===================
The Company generally lends up to 80% of the appraised value of residential
real property. In some cases, a higher amount is possible through a first
mortgage loan or a combination of a first and a second mortgage loan on the same
property. During 2000, 19% of loans originated exceeded 80% of the appraised
value of the secured property, including $353 million of firsts and $3.5 billion
of combined firsts and seconds.
The Company takes steps to minimize the potential credit risk with respect
to loans with a loan to value (LTV) over 80%. Among other things, the loan
amount may not exceed 95% of the appraised value of a single-family residence.
Also, some first mortgage loans with an LTV over 80% carry mortgage insurance,
which reimburses the Company for losses up to a specified percentage per loan,
thereby reducing the effective LTV to below 80%. Furthermore, the Company sells
without recourse a significant portion of its second mortgage originations. In
addition, the Company carries pool mortgage insurance on most seconds not sold,
such that the cumulative losses covered by this pool mortgage insurance are
limited to 10% or 20% of the original balance of the insured pool.
The following table shows mortgage originations with LTV ratios or combined
LTV ratios greater than 80% for the years ended December 31, 2000 and 1999.
TABLE 48
Mortgage Originations With Loan to Value and
Combined Loan to Value Ratios Greater than 80%
1999 - 2000
(Dollars in Thousands)
For the Year Ended
December 31
------------------------------------
2000 1999
----------------- ---------------
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 124,066 $ 98,141
With no insurance 229,397 233,212
----------------- ---------------
353,463 331,353
----------------- ---------------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 2,549,049 1,092,778
With no insurance 924,538 936,724
----------------- ---------------
3,473,587 2,029,502
----------------- ---------------
Total $ 3,827,050 $ 2,360,855
================= ===============
The following table shows the outstanding balance of mortgages with
original LTV or combined LTV ratios greater than 80% at December 31, 2000 and
1999.
TABLE 49
Balance of Mortgages with Loan to Value and
Combined Loan to Value Ratios Greater than 80%
1999 - 2000
(Dollars in Thousands)
As of December 31
-------------------------------------
2000 1999
---------------- -----------------
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 388,625 $ 393,580
With no insurance 823,864 844,847
---------------- -----------------
1,212,489 1,238,427
---------------- -----------------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 2,193,990 1,131,357
With no insurance 722,703 308,650
---------------- -----------------
2,916,693 1,440,007
---------------- -----------------
Total $4,129,182 $ 2,678,434
================ =================
Approximately $5.2 billion of the Company's ARMs (including MBS with
recourse and MBS-REMICs) have terms that state that the interest rate may not
fall below a lifetime floor set at the time of origination or assumption. As of
December 31, 2000, $144 million of ARMs had reached their rate floors. The
weighted average floor rate on the loans that had reached their floor was 8.01%
at December 31, 2000, compared to 7.69% at December 31, 1999. Without the floor,
the average yield on these loans would have been 7.80% at December 31, 2000 and
6.92% at December 31, 1999.
Loan repayments consist of monthly loan amortization and loan payoffs.
During the years 2000, 1999, and 1998, loan repayments amounted to $4.5 billion,
$4.9 billion, and $6.2 billion, respectively. The decrease in repayments in 2000
was due to a decrease in loan payoffs and due to the securitization of loans
into MBS. The decrease in repayments in 1999 was due to a decrease in loan
prepayments during the second half of the year and due to the securitization of
loans into MBS.
Mortgage Servicing Rights
Capitalized mortgage servicing rights are included in "Other assets" on the
Consolidated Statement of Financial Condition. The following table shows the
changes in capitalized mortgage servicing rights for the years ended December
31, 2000 and 1999.
TABLE 50
Capitalized Mortgage Servicing Rights
1999-2000
(Dollars in Thousands)
2000 1999
-------------- ---------------
Beginning balance of capitalized
mortgage servicing rights $ 37,295 $ 28,635
New capitalized mortgage servicing
rights from loan sales 3,407 20,556
Amortization of capitalized
mortgage servicing rights (12,344) (11,896)
-------------- ---------------
Ending balance of capitalized
mortgage servicing rights $ 28,358 $ 37,295
============== ===============
The book value of Golden West's servicing rights did not exceed the fair
value at December 31, 2000 or 1999 and, therefore, no writedown of the servicing
rights to their fair value was necessary.
Asset Quality
An important measure of the soundness of the Company's loan and MBS
portfolio is its ratio of nonperforming assets (NPAs) to total assets.
Nonperforming assets include non-accrual loans (loans, including loans swapped
into MBS with recourse and loans securitized into MBS-REMICs, that are 90 days
or more past due) and real estate acquired through foreclosure. No interest is
recognized on non-accrual loans. NPAs amounted to $239 million, $236 million,
and $305 million at yearends 2000, 1999, and 1998, respectively. NPAs at yearend
2000 were comparable to NPAs at yearend 1999. The NPAs during 2000 and 1999
reflected the strong economy and housing market. The Company closely monitors
all delinquencies and takes appropriate steps to protect its interests.
The Company's troubled debt restructured (TDRs) are made up of loans on
which delinquent loan payments have been capitalized or on which temporary
interest rate reductions have been made, primarily to customers negatively
impacted by adverse economic conditions. The Company's TDRs were $2 million or
.00% of assets at December 31, 2000, compared to $11 million or .03% of assets
at December 31, 1999 and $23 million or .06% of assets at December 31, 1998.
The Company's ratio of NPAs and TDRs to total assets decreased to .43% at
December 31, 2000, compared to .59% and .85% at yearends 1999 and 1998,
respectively.
The Company has other impaired loans on which specific loss reserves have
been provided and that were not included in nonperforming loans or troubled debt
restructured because the loans were performing in full accordance with the loan
terms. Other impaired loans amounted to $23 million at yearend 2000, $60
million, and $71 million at yearends 1999 and 1998, respectively.
Allowance for Loan Losses and Reserve for Losses on Loans Sold with
Recourse or Securitized and Retained
The Company provides specific valuation allowances for losses on loans when
impaired and a write-down on foreclosed real estate when any significant and
permanent decline in value is identified. The Company also utilizes a
methodology for monitoring and estimating loan losses that is based on both
historical loss experience in the loan portfolio and factors reflecting current
economic conditions. This approach uses a data base that identifies losses on
loans and foreclosed real estate from past years to the present, broken down by
year of origination, type of loan, and geographical area. Based on these
historical analyses, management is then able to estimate a range of general loss
allowances by type of loan and risk category to cover losses inherent in the
portfolio. One-to-four single family real estate loans are evaluated as a group.
In addition, periodic reviews are made of individual major multi-family and
commercial real estate loans and foreclosed real estate. Where indicated,
specific and general valuation allowances are established or adjusted. In
estimating probable losses inherent in the portfolio, consideration is given to
the estimated sales price, cost of refurbishing, payment of delinquent taxes,
cost of disposal, and cost of holding the property. Additions to and reductions
from the allowances are reflected in current earnings based upon quarterly
reviews of the portfolio and the adequacy of the allowance and reserves for loan
losses. The review methodology and historical analyses are updated at least
annually as needed.
The table below shows the changes in the allowance for loan losses for the
three years ended December 31, 2000, 1999, and 1998.
TABLE 51
Changes in Allowance for Loan Losses
1998-2000
(Dollars in Thousands)
2000 1999 1998
--------------- -------------- ---------------
Beginning allowance for loan losses $232,134 $244,466 $233,280
Provision for (recovery of) losses
charged to expense 9,195 (2,089) 11,260
Transfer of allowance to reserve for losses
on loans sold or securitized and retained (4,470) (12,043) -0-
Less loans charged off (623) -0- (1,387)
Add recoveries 472 1,800 1,313
--------------- -------------- ---------------
Ending allowance for loan losses $236,708 $232,134 $244,466
=============== ============== ===============
Ratio of provision for (recovery of) loan
losses to loan portfolio (including
MBS with recourse and MBS-REMICs) .02% (.01%) .03%
=============== ============== ===============
Ratio of net chargeoffs (recoveries) to
average loans outstanding (including
MBS with recourse and MBS-REMICs) .00% (.01%) .00%
=============== ============== ===============
As previously mentioned, the Company has securitized loans from its
portfolio into FNMA MBS with recourse and MBS-REMICs. The Company's intent is to
hold these MBS and MBS-REMICs to maturity. Because the loans underlying the MBS
and MBS-REMICs are similar to the loans in its loan portfolio, the Company sets
its reserve on these securities in a manner similar to the method it uses for
the allowance for loan losses. The Company also sells loans with full credit
recourse and has established a reserve for potential losses on these loans. The
liability for the reserve for losses on loans sold or securitized and retained
is included in other liabilities. The table below shows the changes in the
reserve for losses on loans sold with recourse or securitized and retained for
the years ended 2000, 1999, and 1998.
TABLE 52
Changes in Reserve for Losses on Loans Sold with Recourse or Securitized and Retained
(Dollars in Thousands)
2000 1999 1998
------------ ------------ -----------
Beginning balance of reserve for losses on loans
sold with recourse or securitized and retained $ 15,572 $ 2,256 $ 886
Initial recourse liability recognized at time of sale 168 1,273 1,370
Net transfers from allowance for loan losses 4,470 12,043 -0-
------------ ------------ -----------
Ending balance of reserve for losses on loans
sold with recourse or securitized and retained $ 20,210 $ 15,572 $ 2,256
============ ============ ===========
The table below shows the composition of the allowance for loan losses and
the reserve for losses on loans sold with recourse or securitized and retained
at December 31.
TABLE 53
Composition of Allowance for Loan Losses and the
Reserve for Losses on Loans Sold with Recourse or Securitized and Retained
(Dollars in Thousands)
2000 1999 1998
------------ ------------- -------------
Real Estate
1 to 4 units
General $229,368 $207,615 $194,429
Specific -0- 369 363
------------ ------------- -------------
229,368 207,984 194,792
------------ ------------- -------------
5+ units and commercial
General 23,514 30,648 33,884
Specific 4,036 9,074 18,046
------------ ------------- -------------
27,550 39,722 51,930
------------ ------------- -------------
Total $256,918 $247,706 $246,722
============ ============= =============
Ratio of allowance for loan
losses and reserve for
losses on loans sold with
recourse or securitized and
retained to total loans
(including MBS with recourse
and MBS-REMICs) and to loans
sold with recourse .48% .60% .68%
============ ============= =============
As previously indicated, the low level of nonperforming assets (NPAs) and
troubled debt restructured (TDRs) over the past three years resulted from the
strong economy and housing market. The impact of the favorable environment is
reflected in the components of the allowance account. Specific valuation
allowances, primarily on large multi-family and commercial real estate loans,
decreased from $18 million at December 31, 1998 to $4 million at December 31,
2000. General loss reserves on large multi-family and commercial real estate
loans declined from $34 million at December 31, 1998 to $24 million at December
31, 2000. The general loss allowances on one-to-four single family real estate
loans increased from $194 million at December 31, 1998 to $229 million at
December 31, 2000 as a result of the increase in the total loan portfolio. As a
result of improved asset quality and rapid portfolio growth, the overall ratio
of the allowance and recourse reserves to total loans and loans sold or
securitized with recourse declined from .68% at the end of 1998 to .48% at the
end of 2000. The ratio to nonperforming assets of the allowance for loan losses
and the reserve for losses on loans sold with recourse or securitized and
retained was 107.31%, 104.82%, and 80.90% at December 31, 2000, 1999, and 1998,
respectively.
Foreclosed Real Estate
At December 31, 2000, the Company had foreclosed real estate in the amount
of $8 million, compared to $11 million a year earlier. The low balances in
foreclosed real estate reflect the strong economy and housing market.
Deposits
Retail deposits increased by $2.7 billion in 2000 compared to increases of
$896 million and $2.6 billion in 1999 and 1998, respectively. Retail deposits
increased during 2000 primarily due to the implementation of marketing campaigns
that took advantage of a favorable savings environment, especially in the second
half of the year. Retail deposits increased during 1999 as the Company
concentrated marketing efforts on building the loyalty of existing depositors.
In addition, the Company sold four branches with a total of $149 million in
deposits in 1999 and sold one branch with $36 million in deposits in 1998. At
December 31, 2000, 1999, and 1998, transaction accounts (which include checking,
passbook, and money market accounts) represented 24%, 35%, and 35%,
respectively, of the total balance of deposits.
The Company has a program to use government securities dealers to sell
certificates of deposit (CDs) to institutional investors (wholesale CDs). The
Company's deposit balance at December 31, 2000 and 1999 included $185 million
and $600 million, respectively, of these wholesale CDs. There were no
outstanding wholesale CDs at December 31, 1998.
Advances from the Federal Home Loan Banks
The Company uses borrowings from the Federal Home Loan Banks (FHLBs), also
known as "advances," to supplement cash flow and to provide funds for loan
originations. Advances are secured by pledges of certain loans, MBS-REMICs,
other MBS, and capital stock of the FHLBs. FHLB advances amounted to $19.7
billion at December 31, 2000, compared to $8.9 billion and $6.2 billion at
December 31, 1999 and 1998, respectively. During 1998, the Company paid off,
before maturity, $4.4 billion of high-cost FHLB of San Francisco advances and,
as a result, incurred a $21 million pre-tax charge for the penalties associated
with these prepayments. See "Extraordinary Item" discussion on page 65.
Securities Sold Under Agreements to Repurchase
The Company borrows funds through transactions in which securities are sold
under agreements to repurchase (Reverse Repos). Reverse Repos are entered into
with selected major government securities dealers, large banks, and the Federal
Home Loan Bank of San Francisco, using from the Company's portfolio. Reverse
Repos amounted to $857 million, $1.0 billion, and $1.3 billion at yearends 2000,
1999, and 1998, respectively.
Other Borrowings
As of December 31, 2000, Golden West, at the holding company level, had a
total of $600 million of subordinated debt issued and outstanding. As of
December 31, 2000, the Company's subordinated debt securities were rated A3 and
A- by Moody's Investors Service, Inc. (Moody's) and Standard & Poor's (S&P),
respectively.
During 1996, WSB received permission from the OTS to issue non-convertible
medium-term notes to institutional investors under rules similar to Office of
the Comptroller of the Currency rules applicable to similarly situated national
banks. As of December 31, 2000, WSB had not issued any notes under this
authority.
During July 2000, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance or sale of up to $1.0
billion of securities, including senior debt, subordinated debt, and preferred
stock. The Company has not issued any securities under this registration
statement.
Stockholders' Equity
The Company's stockholders' equity increased by $492 million during 2000 as
a result of earnings and increased market values of securities available for
sale partially offset by the $109 million cost of the repurchase of Company
stock and the payment of quarterly dividends to stockholders. The Company's
stockholders' equity increased by $71 million during 1999 as a result of
earnings offset by the $345 million cost of the repurchase of Company stock,
decreased market values of securities available for sale, and the payment of
quarterly dividends to stockholders. The Company's stockholders' equity
increased by $426 million during 1998 as a result of earnings and increased
market values of securities available for sale, partially offset by the $80
million cost of the repurchase of Company stock and the payment of quarterly
dividends to stockholders.
During the fourth quarter of 1999, the Company acted to effect a
three-for-one stock split of its Common Stock in the form of a 200% stock
dividend. This dividend was payable December 10, 1999, to holders of record at
the close of business on November 15, 1999. Per share amounts in this discussion
have been restated to reflect this stock dividend unless otherwise noted.
Since 1993, through four separate actions, the Company's Board of Directors
has authorized the purchase by the Company of up to 44.7 million shares of
Golden West's common stock. As of December 31, 2000, 42.9 million shares had
been repurchased and retired at a cost of $915 million since October 28, 1993,
of which 3.7 million shares were purchased and retired at a cost of $109 million
during 2000. Dividends from subsidiaries are expected to continue to be the
major source of funding for the stock repurchase program. The purchase of Golden
West stock is not intended to have a material impact on the normal liquidity of
the Company.
The OTS requires federally insured institutions, such as WSB and WTX, to
meet minimum capital requirements. Under these regulations, a savings
institution is required to meet three separate capital requirements. The first
requirement is to have tangible capital of 1.5% of adjusted total assets. At
December 31, 2000, WSB had tangible capital of $3.7 billion or 6.60% of adjusted
total assets, $2.8 billion in excess of the regulatory requirement. At December
31, 2000, WTX had tangible capital of $288 million or 5.34% of adjusted total
assets, $207 million in excess of the regulatory requirement.
The second requirement is to have core capital of 4% of adjusted total
assets. At December 31, 2000, WSB had core capital of $3.7 billion or 6.60% of
adjusted total assets, $1.4 billion in excess of the regulatory requirement. At
December 31, 2000, WTX had core capital of $288 million or 5.34% of adjusted
total assets, $72 million in excess of the regulatory requirement.
The third capital requirement is to have risk-based capital equal to 8% of
risk-weighted assets. At December 31, 2000, WSB had risk-based capital in the
amount of $4.0 billion or 12.44% of risk-weighted assets, exceeding the current
requirement by $1.4 billion. At December 31, 2000, WTX had risk-based capital in
the amount of $288 million or 26.69% of risk-weighted assets, exceeding the
current requirement by $202 million.
Under OTS regulations which implement the prompt corrective action system
mandated by the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA), an institution is well-capitalized if its ratio of total capital to
risk-weighted assets is 10% or more, its ratio of core capital to risk-weighted
assets is 6% or more, its ratio of core capital to total assets is 5% or more
and it is not subject to any written agreement, order or directive to meet a
specified capital level. WSB and WTX exceeded the qualifications for
well-capitalized institutions under the rules applicable to them.
Because WSB is a subsidiary of a savings and loan holding company, WSB must
at least file a notice with the OTS prior to making capital distributions and,
in some cases, may need to file applications. The OTS may disapprove a notice or
deny an application, in whole or in part, if the OTS finds that: (a) the insured
subsidiary would be undercapitalized or worse following the proposed capital
distribution; (b) the proposed capital distribution raises safety and soundness
concerns; or (c) the proposed capital distribution violates a prohibition
contained in any statute, regulation, agreement with the OTS, or a condition
imposed upon the insured subsidiary in an OTS approved application or notice. In
general, WSB may, with prior notice to the OTS, make capital distributions
during a calendar year in an amount equal to that year's net income plus
retained net income for the preceding two years, as long as immediately after
such distributions it remains at least adequately capitalized. Capital
distributions in excess of such amount, or which would cause WSB to no longer be
adequately capitalized, require specific OTS approval.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), with amendments issued September 28, 2000.
This statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivative instruments as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In June 1999,
the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133" (SFAS 137), which delayed the effective date of SFAS
133 until fiscal years beginning after June 15, 2000. The Company adopted SFAS
133 as of January 1, 2001 and recorded a loss of $10 million before tax, or $6
million after tax. The Company does not currently intend to use hedge accounting
for the derivative financial instruments in portfolio at January 1, 2001.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS 140). This statement replaces
previously issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" (SFAS 125). SFAS 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS 125's provisions
without reconsideration. This statement is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after March 31,
2001. Because the Company retains 100% of the beneficial interests in its
MBS-REMIC securitizations, it does not have any effective "retained interests"
requiring disclosures under FAS 140. The implementation of SFAS 140 is not
expected to have a significant impact on the Company's financial statements.
Results of Operations
Net earnings increased in 2000 as compared to 1999 as a result of increased
net interest income partially offset by an increase in general and
administrative expense. Net earnings increased in 1999 as compared to 1998
primarily due to an increase in net interest income, a decrease in the provision
for loan losses made possible by the Company's declining chargeoffs and
nonperforming assets, and an increase in noninterest income. These increases to
net earnings were partially offset by an increase in general and administrative
expenses.
Earnings Per Share
The Company's Basic Earnings Per Share (EPS) was $3.44 for the year ended
December 31, 2000 as compared to $2.90 and $2.60 (before the extraordinary item)
for the years ended December 31, 1999 and 1998, respectively. The Company
reported Diluted EPS of $3.41 for the year ended December 31, 2000 as compared
to $2.87 and $2.58 (before the extraordinary item) for the years ended December
31, 1999 and 1998, respectively.
Profit Margins/Spreads
An important determinant of Golden West's earnings is its primary
spread--the difference between its yield on earning assets and its cost of
funds. The following table shows the components of the Company's primary spread
at the end of the years 1998 through 2000.
TABLE 54
Yield on Earning Assets, Cost of Funds, and Primary Spread
1998-2000
December 31
-------------------------------------
2000 1999 1998
---------- ---------- ----------
Yield on loan portfolio 8.03% 7.16% 7.32%
Yield on investments 7.12 5.88 5.53
---------- ---------- ----------
Yield on earning assets 8.02 7.15 7.30
---------- ---------- ----------
Cost of deposits 5.52 4.69 4.67
Cost of borrowings 6.66 5.77 5.87
---------- ---------- ----------
Cost of funds 5.99 5.00 4.96
---------- ---------- ----------
Primary spread 2.03% 2.15% 2.34%
========== ========== ==========
Yield on Earning Assets
The yield on earning assets increased in 2000 versus 1999 principally
due to increases in the indexes on adjustable rate mortgages due to interest
rate increases that began in the third quarter of 1999 and continued into 2000.
The Company holds ARMs in order to manage the rate sensitivity of the asset side
of the balance sheet. The yield on the Company's ARM portfolio tends to lag
changes in market interest rates because of lags related to the indexes and
because of certain loan features. These features include introductory fixed
rates on new ARM loans, the interest rate adjustment frequency of ARM loans,
interest rate caps or limits on individual rate changes, and interest rate
floors. On balance, the index lags and ARM structural features cause the
Company's assets to reprice more slowly than its liabilities, resulting in a
temporary reduction in net interest income when rates increase and a temporary
increase in net interest income when rates fall.
Cost of Funds
Approximately 94% of Golden West's rate-sensitive liabilities are subject
to repricing in less than one year. Golden West's cost of funds increased during
1999 and 2000 due to an increase in the cost of deposits and an increase in
borrowings as a proportion of interest-costing liabilities.
Interest Rate Swaps
The Company enters into interest rate swaps as a part of its interest rate
risk management strategy. Such instruments are entered into solely to alter the
repricing characteristics of designated assets and liabilities. The Company does
not hold any derivative financial instruments for trading purposes.
Interest rate swap activity decreased net interest income by $4 million,
$11 million, and $9 million for the years ended December 31, 2000, 1999, and
1998, respectively.
The table below summarizes the unrealized gains and losses for
interest rate swaps at December 31, 2000 and 1999.
TABLE 55
Unrealized Gains and Losses on Interest Rate Swaps
1999-2000
(Dollars in Thousands)
December 31, 2000
---------------------------------------------------------
Unrealized Unrealized Net Unrealized
Gains Losses (Loss)
---------------- ----------------- ----------------
Interest rate swaps $ 1,330 $ 11,233 $ (9,903)
================ ================= ================
December 31, 1999
---------------------------------------------------------
Unrealized Unrealized Net Unrealized
Gains Losses (Loss)
---------------- ----------------- ----------------
Interest rate swaps $ 7,109 $ 8,986 $ (1,877)
================ ================= ================
TABLE 56
Interest Rate Swap Activity
1999-2000
(Notional Amounts in Millions)
Receive Pay
Fixed Fixed
Swaps Swaps
------------ -------------
Balance at January 1, 1999 $ 512 $ 899
Additions 80 -0-
Maturities (329) (172)
------------ -------------
Balance at December 31, 1999 263 727
Maturities (46) (10)
------------ -------------
Balance at December 31, 2000 $ 217 $ 717
============ =============
Interest on Loans
Interest on loans was $2.5 billion, $1.9 billion, and $2.3 billion for the
years ended December 31, 2000, 1999, and 1998, respectively. The increase in
2000 was due to an increase in the average portfolio balance and an increase in
the average portfolio yield. The decrease in 1999 was due to a decrease in the
average portfolio balance and a decrease in the average portfolio yield. The
decreases in the average loan portfolio balances during 1999 were primarily due
to the securitization of loans into FNMA MBS and MBS-REMICs as discussed in "
Loans Receivable and Mortgage-Backed Securities" on pages 49 and 50.
Interest on MBS
Interest on MBS was $1.1 billion, $769 million, and $498 million for the
years ended December 31, 2000, 1999, and 1998, respectively. The increase in
2000 was due to an increase in the average portfolio balance and an increase in
the average portfolio yield. The increase in 1999 was due to an increase in the
average portfolio balance, which was partially offset by a decrease in the
average portfolio yield. The increases in the MBS portfolio during 2000 and 1999
were primarily due to the securitization of loans into FNMA MBS and MBS-REMICs,
as previously discussed.
Interest and Dividends on Investments
The income earned on the investment portfolio fluctuates, depending upon
the volume outstanding and the yields available on short-term investments.
Interest and dividends on investments was $254 million, $205 million, and $210
million for the years ended December 31, 2000, 1999, and 1998, respectively. The
increase in 2000 was primarily due to an increase in the average portfolio yield
partially offset by a decrease in the average portfolio balance. In addition,
included in interest and dividends on investments for the year ended December
31, 2000 was $3.7 million of special dividends from the FHLB of San Francisco
and $2.8 million of special dividends from the FHLB of Dallas for a total of
$6.5 million. The decrease in 1999 was primarily due to a decrease in the
average portfolio yield which was partially offset by an increase in the average
portfolio balance.
Interest on Deposits
Interest on deposits was $1.5 billion, $1.3 billion, and $1.3 billion for
the years ended December 1, 2000, 1999, and 1998, respectively. The increase in
2000 was due to an increase in the average cost of deposits and an increase in
the average balance of deposits. Interest on deposits in 1999 was comparable to
1998.
Interest on Advances
Interest paid on FHLB advances was $961 million, $380 million, and $439
million for the years ended December 31, 2000, 1999, and 1998, respectively. The
increase in 2000 was due to an increase in the average cost of these borrowings
and an increase in the average balance of these borrowings. The decrease in 1999
was due to a decrease in the average cost of these borrowings and a decrease in
the average outstanding balance.
Interest on Other Borrowings
Interest expense on other borrowings, including interest on reverse
repurchase agreements, amounted to $190 million, $192 million, and $271 million
for the years ended 2000, 1999, and 1998, respectively. The decrease in the
expense in 2000 compared with 1999 was due to a decrease in the average balance
of these liabilities partially offset by an increase in the average cost. The
decrease in the expense in 1999 compared with 1998 was due to a decrease in the
average balance of these liabilities and a decrease in the average cost.
Provision for (Recovery of) Loan Losses
The provision for loan losses was $9 million for the year ended 2000,
compared to a recovery of $2 million for the year ended 1999 and a provision of
$11 million for the year ended 1998. The provision in 2000 reflected the rapid
growth in the loan portfolio. The recoveries in 1999 reflected declining
nonperforming assets as a result of the strong economy and housing market.
Noninterest Income
Noninterest income was $161 million, $143 million, and $138 million for the
years ended December 31, 2000, 1999, and 1998, respectively. The increase in
2000 was primarily due to higher loan fee income. In addition, in 2000, other
income included $24 million of income earned on our check outsourcing program
which started in September 1999. Under the new program, interest from float on
outstanding checks is reported in other income instead of interest income as had
been done previously. For the year ended December 31, 1999, noninterest income
also included gains of $8 million from the sale of four savings offices located
in markets with limited growth potential. There were no branch sales in 2000.
Noninterest income for the year ended December 31, 1998, included a gain of $13
million from the redemption of preferred stock which was called by the issuer
and a gain of $3 million from the sale of one savings branch.
General and Administrative Expenses
General and administrative expenses (G&A) were $425 million, $386 million,
and $355 million for the years ended 2000, 1999, and 1998, respectively.
Expenses increased in 2000 because of ongoing investments in personnel,
facilities, and technology. Expenses increased in 1999 because of normal
increases in employee compensation, the expansion of the loan origination
organization to take advantage of opportunities to increase mortgage volume,
investments in new computers to enhance customer service in the Company's
branches, enhancements to data processing systems to take advantage of new
technologies, and the completion of the "Year 2000" project.
General and administrative expenses as a percentage of average assets was
.87% for the year ended December 31, 2000 compared with .98% and .90% for the
years ended December 31, 1999 and 1998, respectively. G&A as a percentage of
average assets decreased in 2000 because assets grew faster than G&A expense.
Taxes on Income
Golden West utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. For financial
reporting purposes only, the Company uses "purchase accounting" in connection
with certain assets acquired through mergers. The purchase accounting portion of
income is not subject to tax.
Taxes as a percentage of earnings increased slightly in 2000 compared with
1999 and decreased slightly in 1999 over 1998. The decrease in the tax rate in
1999 as compared to 1998 was due to a lower overall state tax rate due to the
expansion of business in lower taxing states and the tax benefit associated with
the donation of land to the Alamo Community College district in San Antonio,
Texas.
Extraordinary Item
During 1998, the Company paid off, before maturity, $4.4 billion of
high-cost FHLB of San Francisco advances and, as a result, incurred a $21
million pre-tax charge for the penalties associated with these prepayments.
Liquidity and Capital Resources
WSB's principal sources of funds are cash flows generated from earnings;
deposits; loan repayments; sales of loans; wholesale certificates of deposit;
borrowings from the FHLB; investments and borrowings from its affiliates; and
debt collateralized by mortgages, MBS, or securities. In addition, WSB has other
alternatives available to provide liquidity or finance operations including
federal funds purchased, the issuance of medium-term notes, borrowings from
public offerings of debt, issuances of commercial paper, and borrowings from
commercial banks. Furthermore, under certain conditions, WSB may borrow from the
Federal Reserve Bank of San Francisco to meet short-term cash needs. The
availability of these funds will vary depending upon policies of the FHLB, the
Federal Reserve Bank of San Francisco, and the Federal Reserve Board.
WTX's principal sources of funds are cash flows generated from earnings;
deposits; loan repayments; borrowings from the FHLB Dallas; debt collateralized
by mortgages or securities, and borrowings from its parent WSB.
The principal sources of funds for WSB's parent, Golden West, are dividends
from subsidiaries, interest on investments, and the proceeds from the issuance
of debt and equity securities. Various statutory and regulatory restrictions and
tax considerations limit the amount of dividends WSB can pay. The principal
liquidity needs of Golden West are for payment of interest and principal on
subordinated debt securities, capital contributions to its subsidiaries ($20
million in 2000 and $117 thousand in 1999), dividends to stockholders, the
purchase of Golden West stock, and general and administrative expenses.
Common Stock
The quarterly price ranges for the Company's common stock during 2000 and
1999 were as follows:
TABLE 57
Common Stock Price Range
1999-2000
2000 1999
-------------------------------- ------------------------------------
First Quarter $27.19 - $32.50 $29.27 - $34.52
Second Quarter $30.38 - $46.00 $30.64 - $34.95
Third Quarter $41.81 - $53.63 $30.27 - $33.56
Fourth Quarter $50.50 - $69.44 $31.25 - $38.02
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See pages 46 through 49 in Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index included on page 73 and the financial statements, which begin on
page F-1, which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows (see
footnote explanations on the following page):
Name and Age Position
------------ --------
Herbert M. Sandler, 69 Chairman of the Board and Chief Executive Officer
Marion O. Sandler, 70 Chairman of the Board and Chief Executive Officer
James T. Judd, 62 Senior Executive Vice President
Russell W. Kettell, 57 President, Treasurer, and Chief Financial Officer (a)
Michael Roster, 55 Executive Vice President, General Counsel, and Secretary (b)
Carl M. Andersen, 40 Group Senior Vice President (c)
William C. Nunan, 49 Group Senior Vice President and Chief Accounting Officer (d)
Maryellen Cattani Herringer, 57 Director
Louis J. Galen, 75 Director
Antonia Hernandez, 53 Director
Patricia A. King, 58 Director
Bernard A. Osher, 73 Director
Kenneth T. Rosen, 52 Director
Leslie Tang Schilling, 46 Director
Each of the above persons holds the same position with WSB with the
exception of James T. Judd who is President, Chief Operating Officer, and
Director of WSB and Russell W. Kettell who is a Senior Executive Vice President
and Director of WSB. Each executive officer has had the principal occupations
shown for the prior five years except as follows:
(a) Russell W. Kettell was elected Chief Financial Officer in December 1999,
was elected Treasurer of the Company in January 1995, and has served as
President of the Company since February 1993. Prior thereto, Mr. Kettell
served as Senior Executive Vice President since 1989, Executive Vice
President since 1984, Senior Vice President since 1980, and Treasurer from
1976 until 1984.
(b) Michael Roster was elected Executive Vice President, General Counsel and
Secretary in February 2000. Prior thereto, Mr. Roster was General Counsel
at Stanford University.
(c) Carl M. Andersen was elected Group Senior Vice President in 1999 and Senior
Vice President of the Company in 1997. He served as Senior Vice President
with WSB and WTX since 1996. Prior thereto, he served as Vice President of
WSB since 1990.
(d) William C. Nunan was elected Chief Accounting Officer of the Company in
December 1999, was elected Group Senior Vice President in 1999, and was
elected Senior Vice President of the Company in 1997. He served as Senior
Vice President with WSB and WTX since 1995. Prior thereto, he served as
Vice President of WSB since 1985.
For further information concerning the directors and executive officers of
the Registrant, see pages 2 and 3 of the Registrant's Proxy Statement dated
March 12, 2001, which are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in Registrant's Proxy
Statement dated March 12, 2001, on pages 4 through 6 and 8 through 10 and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth on pages 2, 3, 6 and
7 of Registrant's Proxy Statement dated March 12, 2001, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Indebtedness of Management" on page 9 of the Registrant's Proxy
Statement dated March 12, 2001, which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Index to Financial Statements
See Index included on page 73 and the financial statements, which begin on
page F-1.
(2) Index to Financial Statement Schedules
Financial statement schedules are omitted because they are not
required or because the required information is included in the financial
statements or the notes thereto.
(3) Index to Exhibits
Exhibit No. Description
----------- ------------
3(a) Certificate of Incorporation, as amended, and amendments thereto,
are incorporated by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K (File No. 1-4269) for the year ended
December 31, 1990.
3(b) By-Laws, as amended in 1997.
4(a) The Registrant agrees to furnish to the Commission, upon
request, a copy of each instrument with respect to issues of
long-term debt, the authorized principal amount of which does not
exceed 10% of the total assets of the Company.
10(a) 1996 Stock Option Plan, as amended, is incorporated by reference
to Exhibit A of the Company's Definitive Proxy Statement on
Schedule 14A, filed on March 15, 1996, for the Company's 1996
Annual Meeting of Stockholders.
10(b) Annual Incentive Bonus Plan is incorporated by reference to
Exhibit A of the Company's Definitive Proxy Statement on Schedule
14A, filed on March 14, 1997, for the Company's 1998 Annual
Meeting of Stockholders.
10(c) Deferred Compensation Agreement between the Company and James T.
Judd is incorporated by reference to Exhibit 10(b) of the
Company's Annual Report on Form 10-K (File No. 1-4629) for the
year ended December 31, 1986.
10(d) Deferred Compensation Agreement between the Company and Russell
W. Kettell is incorporated by reference to Exhibit 10(c) of the
Company's Annual Report on Form 10-K (File No. 1-4629) for the
year ended December 31, 1986.
10(g) Operating lease on Company headquarters building, 1901 Harrison
Street, Oakland, California 94612, is incorporated by reference
to Exhibit 10(h) of the Company's Quarterly Report on Form 10-Q
(File No. 1-4629) for the quarter ended September 30, 1998.
10(h) Form of Supplemental Retirement Agreement between the Company
and certain executive officers is incorporated by reference to
Exhibit 10(j) to the Company's Annual Report on Form 10-K (File
No. 1-4629) for the year ended December 31, 1990.
21(a) Subsidiaries of the Registrant.
23(a) Independent Auditors' Consent.
(b) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a part of section
(a), Exhibits.
(c) Reports on Form 8-K
The Registrant did not file any current reports on Form 8-K with the
Commission in the fourth quarter.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned Registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into Registrant's Registration Statement on Form S-8
No. 33-14833 (filed June 5, 1987):
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
By: /s/ Herbert M. Sandler
-------------------------------------------------
Herbert M. Sandler,
Chairman of the Board and Chief Executive Officer
By: /s/ Marion O. Sandler
-------------------------------------------------
Marion O. Sandler,
Chairman of the Board and Chief Executive Officer
By: /s/ Russell W. Kettell
-------------------------------------------------
Russell W. Kettell,
President and Chief Financial Officer
By: /s/ William C. Nunan
-------------------------------------------------
William C. Nunan,
Group Senior Vice President and Chief Accounting
Officer
Dated: March 29, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ Maryellen Cattani Herringer 3/29/01 /s/ Bernard A. Osher 3/29/01
- --------------------------------------- --------------------------------------
Maryellen Cattani Herringer Bernard A. Osher
Director Director
/s/ Louis J. Galen 3/29/01 /s/ Kenneth T. Rosen 3/29/01
- -------------------------------------- --------------------------------------
Louis J. Galen Kenneth T. Rosen
Director Director
/s/ Herbert M. Sandler 3/29/01
- -------------------------------------- --------------------------------------
Antonia Hernandez Herbert M. Sandler
Director Director
/s/ Patricia A. King 3/29/01 /s/ Marion O. Sandler 3/29/01
- -------------------------------------- --------------------------------------
Patricia A. King Marion O. Sandler
Director Director
/s/ Leslie Tang Schilling 3/29/01
--------------------------------------
Leslie Tang Schilling
Director
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report.........................................F-1
Golden West Financial Corporation and Subsidiaries:
Consolidated Statement of Financial Condition as of
December 31, 2000, and 1999.................................F-2
Consolidated Statement of Net Earnings for the years
ended December 31, 2000, 1999, and 1998 ....................F-3
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 2000, 1999, and 1998...............F-4
Consolidated Statement of Cash Flows for the years
ended December 31, 2000, 1999, and 1998.....................F-5, F-6
Notes to Consolidated Financial Statements.......................F-7
All supplemental schedules are omitted as inapplicable or because the required
information is included in the financial statements or notes thereto.
Independent Auditors' Report
----------------------------
Board of Directors and Stockholders
Golden West Financial Corporation
Oakland, California
We have audited the accompanying consolidated statement of financial
condition of Golden West Financial Corporation and subsidiaries (the "Company")
as of December 31, 2000 and 1999, and the related consolidated statements of net
earnings, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Golden West Financial
Corporation and subsidiaries at December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Oakland, California
January 22, 2001
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
---------------------------------------------
(Dollars in thousands except per share figures)
ASSETS
------
December 31
--------------------------------
2000 1999
--------------- --------------
Cash $ 350,430 $ 333,793
Securities available for sale at fair value
(cost of $10,784 and $59,585) (Note B) 392,841 319,444
Other investments at cost (fair value of $368,317 and
$466,086) (Note C) 368,555 467,156
Purchased mortgage-backed securities available for sale at
fair value (cost of $69,159 and $77,796) (Notes D and K) 69,960 79,009
Purchased mortgage-backed securities held to maturity at cost
(fair value of $389,527 and $429,007) (Notes E, J and K) 385,543 434,711
Mortgage-backed securities with recourse held to maturity at cost
(fair value of $18,005,387 and $10,960,785) (Notes E, J and K) 18,124,987 11,147,901
Loans receivable less allowance for loan losses of
$236,708 and $232,134 (Notes F and J) 33,762,643 27,919,817
Interest earned but uncollected (Note G) 276,306 175,351
Investment in capital stock of Federal Home Loan Banks,
at cost which approximates fair value (Note J) 1,067,800 541,013
Foreclosed real estate 8,261 10,909
Premises and equipment, net (Note H) 307,652 278,493
Other assets 588,991 434,608
--------------- --------------
$55,703,969 $42,142,205
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31
--------------------------------
2000 1999
--------------- --------------
Deposits (Note I) $30,047,919 $27,714,910
Advances from Federal Home Loan Banks (Note J) 19,731,797 8,915,218
Securities sold under agreements to repurchase (Note K) 857,274 1,045,176
Subordinated notes (Note L) 598,791 812,950
Taxes on income (Note M) 432,207 275,526
Other liabilities (Note F) 348,694 183,571
--------------- --------------
52,016,682 38,947,351
Stockholders' equity (Notes N and P):
Preferred stock, par value $1.00:
Authorized 20,000,000 shares
Issued and outstanding, none
Common stock, par value $.10:
Authorized 200,000,000 shares
Issued and outstanding, 158,410,137 and 161,357,833 shares 15,841 16,136
Additional paid-in capital 151,458 135,555
Retained earnings 3,287,325 2,885,346
--------------- --------------
3,454,624 3,037,037
Accumulated other comprehensive income from unrealized gains
on securities, net of income tax of $150,195 and $103,255 232,663 157,817
--------------- --------------
Total Stockholders' Equity 3,687,287 3,194,854
--------------- --------------
$55,703,969 $42,142,205
=============== ==============
See notes to consolidated financial statements.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET EARNINGS
--------------------------------------
(Dollars in thousands except per share figures)
Year Ended December 31
-------------------------------------------
2000 1999 1998
-------------- ------------ ------------
Interest Income:
Interest on loans $ 2,469,556 $ 1,851,790 $ 2,254,427
Interest on mortgage-backed securities 1,072,559 769,314 498,319
Interest and dividends on investments 254,425 204,741 209,807
-------------- ------------ ------------
3,796,540 2,825,845 2,962,553
Interest Expense:
Interest on deposits (Note I) 1,494,447 1,250,364 1,285,343
Interest on advances 960,824 380,189 438,660
Interest on repurchase agreements 86,549 61,565 112,942
Interest on other borrowings 103,552 130,242 158,286
-------------- ------------ ------------
2,645,372 1,822,360 1,995,231
-------------- ------------ ------------
Net Interest Income 1,151,168 1,003,485 967,322
Provision for (recovery of) loan losses 9,195 (2,089) 11,260
-------------- ------------ ------------
Net Interest Income after Provision for
(Recovery of) Loan Losses 1,141,973 1,005,574 956,062
Noninterest Income:
Fees 78,016 65,456 62,820
Gain on the sale of securities and loans 10,515 22,764 38,784
Other 72,289 55,082 36,009
-------------- ------------ ------------
160,820 143,302 137,613
Noninterest Expense:
General and administrative:
Personnel 243,787 215,483 196,153
Occupancy 72,355 67,015 62,549
Deposit insurance 5,699 5,358 5,925
Advertising 8,450 11,928 10,412
Other 94,556 86,363 79,468
-------------- ------------ ------------
424,847 386,147 354,507
Earnings before Taxes on Income 877,946 762,729 739,168
Taxes on income (Note M) 332,155 282,750 292,077
-------------- ------------ ------------
Earnings before Extraordinary Item 545,791 479,979 447,091
Extraordinary item (Note A) -0- -0- (12,511)
-------------- ------------ ------------
Net Earnings $ 545,791 $ 479,979 $ 434,580
============== ============ ============
Basic earnings per share before extraordinary item $ 3.44 $ 2.90 $ 2.60
Extraordinary item 0.00 0.00 (0.07)
-------------- ------------ ------------
Basic earnings per share (Note O) $ 3.44 $ 2.90 $ 2.53
============== ============ ============
Diluted earnings per share before extraordinary item $ 3.41 $ 2.87 $ 2.58
Extraordinary item 0.00 0.00 (0.07)
-------------- ------------ ------------
Diluted earnings per share (Note O) $ 3.41 $ 2.87 $ 2.51
============== ============ ============
See notes to consolidated financial statements.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
(Dollars in thousands except per share figures)
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
--------- --------- ---------- --------------- ------------- ---------------
Balance at January 1, 1998 $ 5,707 $ 85,532 $2,457,055 $ 149,737 $ 2,698,031
Net earnings -0- -0- 434,580 -0- 434,580 $ 434,580
Change in unrealized gains on
securities available for sale -0- -0- -0- 72,833 72,833 72,833
Reclassification adjustment for
gains included in income -0- -0- -0- (8,022) (8,022) (8,022)
---------------
Comprehensive Income $ 499,391
===============
Common stock issued upon exercise
of stock options, including tax
benefits - 2,382,960 shares 80 36,627 -0- -0- 36,707
Purchase and retirement of 3,005,100
shares of Company stock (Note N) (101) -0- (80,222) -0- (80,323)
Cash dividends on common stock
($.172 per share) -0- -0- (29,488) -0- (29,488)
--------- --------- ---------- --------------- -------------
Balance at December 31, 1998 5,686 122,159 2,781,925 214,548 3,124,318
Net earnings -0- -0- 479,979 -0- 479,979 $ 479,979
Change in unrealized gains on
securities available for sale -0- -0- -0- (55,981) (55,981) (55,981)
Reclassification adjustment for
gains included in income -0- -0- -0- (750) (750) (750)
---------------
Comprehensive Income $ 423,248
===============
Common stock issued upon exercise
of stock options, including tax
benefits - 1,508,461 shares 78 24,172 -0- -0- 24,250
Purchase and retirement of
10,734,000
shares of Company stock (Note N) (404) -0- (344,655) -0- (345,059)
Common stock split effected by
means of a 200% stock dividend
(Note N) 10,776 (10,776) -0- -0- -0-
Cash dividends on common stock
($.193 per share) -0- -0- (31,903) -0- (31,903)
--------- --------- ---------- --------------- -------------
Balance at December 31, 1999 16,136 135,555 2,885,346 157,817 3,194,854
Net earnings -0- -0- 545,791 -0- 545,791 $ 545,791
Change in unrealized gains on
securities available for sale -0- -0- -0- 74,849 74,849 74,849
Reclassification adjustment for
gains included in income -0- -0- -0- (3) (3) (3)
---------------
Comprehensive Income $ 620,637
===============
Common stock issued upon exercise
of stock options, including tax
benefits - 725,004 shares 72 15,903 -0- -0- 15,975
Purchase and retirement of 3,673,300
shares of Company stock (Note N) (367) -0- (108,930) -0- (109,297)
Cash dividends on common stock
($.22 per share) -0- -0- (34,882) -0- (34,882)
--------- --------- ---------- --------------- -------------
Balance at December 31, 2000 $ 15,841 $151,458 $3,287,325 $ 232,663 $ 3,687,287
========= ========= ========== =============== =============
See notes to consolidated financial statements.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Dollars in thousands)
Year Ended December 31
-----------------------------------------------
2000 1999 1998
------------- ------------- -------------
Cash Flows from Operating Activities:
Net earnings $ 545,791 $ 479,979 $ 434,580
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Extraordinary item -0- -0- 21,152
Provision for (recovery of) loan losses 9,195 (2,089) 11,260
Amortization of net loan (fees), costs and (discounts) 7,877 (14,100) (22,410)
Depreciation and amortization 30,242 28,215 25,913
Loans originated for sale (240,684) (793,443) (1,155,912)
Sales of loans 349,809 1,196,403 1,423,084
Decrease (increase) in interest earned but uncollected (93,118) 33,977 7,595
Federal Home Loan Bank stock dividends (58,333) (36,383) (51,156)
(Increase) in other assets (155,637) (76,669) (99,601)
Increase (decrease) in other liabilities 160,653 (296,685) 21,888
Increase (decrease) in taxes on income 109,742 (8,967) 19,532
Other, net (16,268) 717 12,782
------------- ------------- -------------
Net cash provided by operating activities 649,269 510,955 648,707
Cash Flows from Investing Activities:
New loan activity:
Real estate loans originated for portfolio (19,542,003) (11,878,768) (7,032,022)
Real estate loans purchased (195) (1,375) (2,683)
Other, net (276,993) (100,285) (188,393)
------------- ------------- -------------
(19,819,191) (11,980,428) (7,223,098)
Real estate loan principal payments:
Monthly payments 537,989 580,428 648,331
Payoffs, net of foreclosures 3,926,007 4,366,672 5,552,187
------------- ------------- -------------
4,463,996 4,947,100 6,200,518
Purchases of mortgage-backed securities (4,356) -0- -0-
Repayments of mortgage-backed securities 2,457,365 2,759,224 2,093,124
Proceeds from sales of real estate 43,537 109,165 146,202
Purchases of securities available for sale (3,087,578) (6,413,774) (368,151)
Sales of securities available for sale 10 19 81,373
Matured securities available for sale 3,140,089 6,381,785 632,284
Decrease (increase) in other investments 98,601 (44,771) (169,737)
Purchases of Federal Home Loan Bank stock (512,979) -0- (149,662)
Redemptions of Federal Home Loan Bank stock 36,688 275,673 -0-
Additions to premises and equipment (62,344) (38,063) (64,143)
------------- ------------- -------------
Net cash provided by (used in) investing activities (13,246,162) (4,004,070) 1,178,710
See notes to consolidated financial statements.
Year Ended December 31
--------------------------------------------
2000 1999 1998
-------------- ------------- -------------
Cash Flows from Financing Activities:
Net increase in deposits $ 2,333,009 $ 1,495,815 $ 2,109,378
Additions to Federal Home Loan Bank advances 13,664,250 4,332,230 8,363,135
Repayments of Federal Home Loan Bank advances (2,847,672) (1,580,482) (10,737,644)
Proceeds from agreements to repurchase securities 7,809,989 7,826,377 6,555,115
Repayments of agreements to repurchase securities (7,997,891) (8,033,670) (7,636,694)
Repayments of medium-term notes -0- -0- (110,000)
Repayments of subordinated notes (215,000) (100,000) (200,000)
Dividends on common stock (34,882) (31,903) (29,488)
Exercise of stock options 11,024 12,725 17,738
Purchase and retirement of Company stock (109,297) (345,059) (80,323)
-------------- ------------- -------------
Net cash provided by (used in) financing activities 12,613,530 3,576,033 (1,748,783)
-------------- ------------- -------------
Net Increase in Cash 16,637 82,918 78,634
Cash at beginning of period 333,793 250,875 172,241
-------------- ------------- -------------
Cash at end of period $ 350,430 $ 333,793 $ 250,875
============== ============= =============
Supplemental cash flow information:
Cash paid for:
Interest $ 2,543,728 $ 1,814,859 $ 2,018,128
Income taxes 218,385 280,536 248,086
Cash received for interest and dividends 3,695,585 2,859,822 2,970,148
Noncash investing activities:
Loans converted from adjustable rate to fixed-rate 28,930 522,047 228,529
Loans transferred to foreclosed real estate 35,948 65,392 112,406
Loans securitized into mortgage-backed securities with
recourse held to maturity 9,482,904 4,773,615 8,189,190
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE A - Summary of Significant Accounting Policies
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Golden West
Financial Corporation, a Delaware corporation, and its wholly owned subsidiaries
(the Company or Golden West). Intercompany accounts and transactions have been
eliminated. World Savings Bank, a federally chartered savings bank (WSB), is the
Company's principal operating subsidiary with $55.7 billion in assets on
December 31, 2000. Certain reclassifications have been made to prior year
financial statements to conform to current presentation.
Organizational Structure
- ------------------------
During the fourth quarter of 2000, World Savings Bank, a State Savings Bank
(WSSB), a wholly owned subsidiary of Golden West, received approval to change
from a Texas state savings bank regulated by the Federal Deposit Insurance
Corporation (FDIC) to a federally chartered savings bank regulated by the Office
of Thrift Supervision (OTS). WSSB's new name as a result of this change is World
Savings Bank, FSB Texas (WTX).
On December 1, 2000, Golden West contributed WTX to WSB and WTX became a
wholly owned subsidiary of WSB. In addition, on December 31, 2000, World Savings
and Loan Association, a wholly owned subsidiary of Golden West, was merged into
WSB. The reorganization of these subsidiaries had no effect on the Golden West
consolidated financial statements as of December 31, 2000.
Nature of Operations
- --------------------
Golden West Financial Corporation, through its financial institution
subsidiaries, operates 253 savings branches in eight states and 278 loan offices
in 32 states, of which 117 loan offices are located in savings branches. The
Company's primary source of revenue is interest from loans on residential real
estate and mortgage-backed securities.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash
- ----
For the purpose of presentation in the Consolidated Statement of Cash
Flows, cash is defined as cash held in office and amounts due from banks.
The Office of Thrift Supervision requires insured institutions to maintain
a minimum amount of liquid assets in the form of cash and securities approved by
federal regulations at either (a) 4% of the quarterly average of daily balances
of short-term deposits and borrowings for the prior quarter or (b) 4% of the
prior quarter's ending balance of short-term deposits and borrowings.
Securities Available for Sale and Other Investments
- ---------------------------------------------------
The Company classifies its investment securities as either held to maturity
or available for sale. The Company has no trading securities. Held to maturity
securities are recorded at cost with any discount or premium amortized using the
interest method. Securities held to maturity are recorded at cost because the
Company has the ability to hold these securities to maturity and because it is
Management's intention to hold them to maturity. Securities available for sale
are reported at fair value. Net unrealized gains and losses are excluded from
earnings and reported net of applicable income taxes in other comprehensive
income and as a separate component of stockholders' equity until realized.
Realized gains or losses on sales of securities are recorded in earnings at the
time of sale and are determined by the difference between the net sales proceeds
and the cost of the security, using specific identification, adjusted for any
unamortized premium or discount. The Company has other investments, consisting
of overnight investments such as Eurodollar time deposits and federal funds, and
longer-term investments such as Bank notes, medium-term notes, and
collateralized mortgage obligations. These other investments are recorded at
cost with any discount or premium amortized using a method that is not
materially different from the interest method.
1
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
-----------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share)
Mortgage-Backed Securities
- --------------------------
The Company has no mortgage-backed securities (MBS) classified as trading.
Mortgage-backed securities held to maturity are recorded at cost because the
Company has the ability and intent to hold these MBS to maturity. Premiums and
discounts on MBS are amortized or accreted using the interest method over the
estimated life of the security. MBS available for sale are reported at fair
value, with unrealized gains and losses excluded from earnings and reported net
of applicable income taxes as a separate component of stockholders' equity until
realized. Realized gains or losses on sales of MBS are recorded in earnings at
the time of sale and are determined by the difference between the net sales
proceeds and the cost of MBS, using specific identification, adjusted for any
unamortized premium or discount. The Company has securitized certain loans from
its held for investment loan portfolio into MBS with recourse and into Real
Estate Mortgage Investment Conduits (REMICs) which are held to maturity and
available to be used as collateral for borrowings. The REMICs are not recorded
as sales because 100% of the beneficial ownership interests are retained by the
Company, including both the primary and subordinate retained interests. The
REMIC securities are recorded at cost and are evaluated with the other
held-to-maturity MBS for impairment based upon the characteristics of the
underlying loans.
Loans Receivable
- ----------------
The Company's real estate loan portfolio consists primarily of long-term
loans collateralized by first deeds of trust on single-family residences and
multi-family residential property. In addition to real estate loans, the Company
makes loans on the security of savings accounts.
The adjustable rate mortgage (ARM) is the Company's primary real estate
loan. The ARM carries an interest rate that may change as often as monthly,
based on movements in certain cost of funds or other indexes. Interest rate
changes and monthly payments of principal and interest may be subject to maximum
increases or decreases. Negative amortization may occur during periods when
payments are limited. A portion of the Company's ARMs are originated with a low,
fixed rate for an initial period, primarily one to 12 months.
The Company originates loans that are held for sale, primarily fixed-rate
loans. These loans are recorded at the lower of cost or market.
A loan is impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. The Company's policy is to measure
impairment based on the fair value of the collateral. When the value of the
impaired loan is less than the recorded investment in the loan, the impairment
is recorded through a valuation allowance. The valuation allowance and provision
for loan losses are adjusted for changes in the fair value of the collateral.
Impairment is measured on an individual loan basis for larger multi-family loans
and on a group basis for smaller single family one-to-four unit loans.
Loan origination fees, net of certain direct loan origination costs, are
deferred and amortized as an interest income yield adjustment over the actual
life of the related loans using the interest method. Loan origination fees, net
of certain direct loan origination costs, on loans originated for sale are
deferred until the loans are sold and recognized at the time of sale.
"Fees," which include fees for prepayment of loans, income for servicing
loans, late charges for delinquent payments, fees from deposit accounts, and
miscellaneous fees, are recorded when collected.
Nonperforming assets consist of loans 90 days or more delinquent, with
balances not reduced for loan loss reserves, and real estate owned through
foreclosure. For loans past due 90 days or more, all interest earned but
uncollected is fully reserved.
Troubled debt restructured consists of loans that have been modified by the
lender to grant a concession to the borrower because of a perceived temporary
weakness in the collateral and/or the borrower's ability to make scheduled
payments.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
Foreclosed Real Estate
- ----------------------
Foreclosed real estate is comprised of improved property acquired through
foreclosure. All real estate owned is recorded at the lower of cost or fair
value. Included in the fair value is the estimated selling price in the ordinary
course of business less estimated costs to repair, hold, and dispose of the
property. Costs relating to holding property, net of rental and option income,
are expensed in the current period. Gains on the sale of real estate are
recognized at the time of sale. Losses realized and expenses incurred in
connection with the disposition of foreclosed real estate are charged to current
earnings.
Allowance for Loan Losses
- -------------------------
The Company provides specific valuation allowances for losses on loans when
impaired and on real estate owned when any significant and permanent decline in
value is identified. The Company also utilizes a methodology for monitoring and
estimating loan losses that is based on both historical experience in the loan
portfolio and factors reflecting current economic conditions. This approach uses
a database that identifies losses on loans and foreclosed real estate from past
years to the present, broken down by year of origination, type of loan, and
geographical area. Management is then able to estimate a range of general loss
allowances to cover losses inherent in the portfolio. In addition, periodic
reviews are made of major loans and real estate owned, and major lending areas
are regularly reviewed to determine potential problems. Where indicated,
valuation allowances are established or adjusted. In estimating probable losses,
consideration is given to the estimated sales price, cost of refurbishing,
payment of delinquent taxes, cost of disposal, and cost of holding the property.
Additions to, and reductions from the allowances are reflected in current
earnings.
Reserve for Losses on Loans Sold with Recourse and Securitized and Retained
- ---------------------------------------------------------------------------
The Company has securitized loans from its portfolio into FNMA MBS with
recourse and MBS-REMICs. The Company's intent is to hold these MBS and
MBS-REMICs to maturity. Because these loans underlying the MBS and MBS-REMICs
are similar in all respects to the loans in its loan portfolio, the Company
estimates its reserve on these securities in a manner similar to the method it
uses for the allowance for loan losses. The Company also sells certain loans
with full credit recourse and has established a reserve for probable losses on
these loans. The liability for the reserve for losses on loans sold or
securitized and retained is included in other liabilities.
Mortgage Servicing Rights
- -------------------------
Capitalized Mortgage Servicing Rights (CMSRs) are periodically reviewed for
impairment based on fair value. The fair value of the CMSRs, for the purposes of
impairment measurement, is determined by using a discounted cash flow analysis
based on the Company's estimated annual cost of servicing, market prepayment
rates, and market discount rates. At December 31, 2000 and 1999, there was no
impairment. The balance of CMSRs is included in "Other assets" in the
Consolidated Statement of Financial Condition and is being amortized over the
projected servicing period. The amortization of the CMSRs is included in "Fee
income" in the Consolidated Statement of Net Earnings.
Securities Sold Under Agreements to Repurchase
- ----------------------------------------------
The Company enters into sales of securities under agreements to repurchase
(reverse repurchase agreements) only with selected dealers and banks. Reverse
repurchase agreements are treated as financings and the obligations to
repurchase securities sold are reflected as a liability in the Consolidated
Statement of Financial Condition. The securities underlying the agreements
remain in the asset accounts.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
Interest Rate Swaps
- -------------------
The Company utilizes certain derivative financial instruments, primarily
various types of interest rate swaps, as a part of its interest rate risk
management strategy. Such instruments are entered into solely to alter the
repricing characteristics of designated assets and liabilities. The Company does
not hold any derivative financial instruments for trading purposes.
An interest rate swap is an agreement between two parties in which one
party exchanges cash payments based on a fixed or floating rate of interest for
a counterparty's cash payment based on a floating rate of interest. The amounts
to be paid are defined by agreement and determined by applying the specified
interest rates to a notional principal amount. Interest rate swap agreements are
entered into to limit the impact of changes in interest rates on mortgage loans,
or other designated assets, deposits or borrowings. The interest rate
differential paid or received on interest rate swap agreements is recognized
over the life of the agreements, with income and expense recorded in the same
category as the designated balance sheet item. The designated balance sheet item
is generally a pool of assets or liabilities with similar interest rate
characteristics. Some interest rate swaps are entered into with starting dates
in the future in anticipation of future prepayments on fixed-rate assets.
Taxes on Income
- ---------------
The Company files consolidated federal income tax returns with its
subsidiaries. The provision for federal and state taxes on income is based on
taxes currently payable and taxes expected to be payable in the future as a
result of events that have been recognized in the financial statements or tax
returns.
Regulatory Capital Requirements
- -------------------------------
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
(FIRREA) established capital standards for OTS regulated institutions, such as
WSB and WTX. Under FIRREA, thrifts and savings banks must have tangible capital
equal to 1.5% of adjusted total assets, have core capital equal to 4% of
adjusted total assets, and have risk-based capital equal to 8% of risk-weighted
assets.
At December 31, 2000, WSB had the following regulatory capital calculated
in accordance with FIRREA's capital standards:
2000
---------------------------------------------------
ACTUAL REQUIRED
------------------------- -------------------------
Capital Ratio Capital Ratio
------------- -------- -------------- --------
Tangible $ 3,653,377 6.60% $ 830,326 1.50%
Core 3,653,377 6.60 2,214,203 4.00
Risk-based 3,982,988 12.44 2,562,226 8.00
At December 31, 1999, WSB had the following regulatory capital calculated
in accordance with FIRREA's capital standards. The December 31, 1999 numbers are
as reported and have not been restated because the OTS does not require that
these numbers be restated to reflect the reorganization that took place in 2000.
1999
---------------------------------------------------
ACTUAL REQUIRED
------------------------- -------------------------
Capital Ratio Capital Ratio
------------- -------- -------------- --------
Tangible $ 2,514,211 6.64% $ 567,705 1.50%
Core 2,514,211 6.64 1,513,880 4.00
Risk-based 2,668,878 11.95 1,786,623 8.00
At December 31, 2000, WTX had the following regulatory capital calculated
in accordance with FIRREA's capital standards:
2000
---------------------------------------------------
ACTUAL REQUIRED
------------------------- -------------------------
Capital Ratio Capital Ratio
------------- -------- -------------- --------
Tangible $ 288,409 5.34% $ 80,982 1.50%
Core 288,409 5.34 215,951 4.00
Risk-based 288,410 26.69 86,432 8.00
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
The OTS has adopted rules based upon five capital tiers: well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. The rules provide that a savings association is
"well-capitalized" if its total risk-based capital ratio is 10% or greater, its
Tier 1 risk-based capital ratio is 6% or greater, its leverage ratio is 5% or
greater, and the institution is not subject to a capital directive.
As used herein, the total risk-based capital ratio is the ratio of total
capital to risk-weighted assets, Tier 1 risk-based capital ratio is the
ratio of core capital to risk-weighted assets, and the leverage ratio is the
ratio of core capital to adjusted total assets, in each case as calculated in
accordance with current OTS capital regulations. WSB and WTX are both regulated
by the OTS. As of December 31, 2000, the most recent notification from the OTS
categorized WSB as "well-capitalized" under the current requirements. There are
no conditions or events that have occurred since that notification that the
Company believes would have an impact on the categorization of WSB.
The tables below show that WSB's regulatory capital exceeded the
well-capitalized classification at December 31, 2000 and 1999.
2000 1999
----------------------------------------------- --------------------------------------------------
ACTUAL WELL-CAPITALIZED ACTUAL WELL-CAPITALIZED
----------------------- ---------------------- ------------------------ -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------ --------- ------------ -------- ------------- --------- ------------ ---------
Leverage $3,653,377 6.60% $2,767,753 5.00% $ 2,514,211 6.64% $ 1,892,349 5.00%
Tier 1 risk-based 3,653,377 11.41 1,921,670 6.00 2,514,211 11.26 1,339,967 6.00
Total risk-based 3,982,988 12.44 3,202,783 10.00 2,668,878 11.95 2,233,279 10.00
The table below shows that WTX's regulatory capital exceeded the
well-capitalized classification at December 31, 2000.
2000
-----------------------------------------------
ACTUAL WELL-CAPITALIZED
----------------------- ----------------------
Capital Ratio Capital Ratio
------------ --------- ------------ --------
Leverage $ 288,409 5.34% $ 269,939 5.00%
Tier 1 risk-based 288,409 26.69 64,824 6.00
Total risk-based 288,410 26.69 108,039 10.00
At December 31, 1999, WTX operated under the name World Savings Bank, a
State Savings Bank and was a state chartered savings bank regulated by the FDIC.
At December 31, 1999, WSSB had the following regulatory capital calculated in
accordance with the FDIC's capital standards:
1999
-----------------------------------------------
ACTUAL REQUIRED
----------------------- -----------------------
Capital Ratio Capital Ratio
------------ ---------- ------------ ----------
Tier 1 leverage $ 202,846 5.66% $ 107,593 3.00%
Tier 1 risk-based 202,846 26.90 30,161 4.00
Total risk-based 203,087 26.93 60,322 8.00
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
Retained Earnings
- -----------------
Because they are subsidiaries of a savings and loan holding company, WSB
and WTX must at least file a notice with the OTS prior to making capital
distributions and, in some cases, may need to file applications. The OTS may
disapprove a notice or deny an application, in whole or in part, if the OTS
finds that: (a) the insured subsidiary would be undercapitalized or worse
following the capital distribution; (b) the proposed capital distribution raises
safety and soundness concerns; or (c) the proposed capital distribution violates
a prohibition contained in any statute, regulation, agreement with the OTS, or a
condition imposed upon the insured subsidiary in an OTS approved application or
notice. In general, WSB and WTX may, with prior notice to the OTS, make capital
distributions during a calendar year in an amount equal to that year's net
income plus retained net income for the preceding two years, as long as
immediately after such distributions they remain at least adequately
capitalized. Capital distributions in excess of such amount, or which would
cause WSB or WTX to no longer be adequately capitalized, require specific OTS
approval.
At December 31, 2000, $1.5 billion of the WSB's retained earnings were
available for the payment of cash dividends without the imposition of additional
federal income taxes. The Company is not subject to the same tax and reporting
restrictions as are WSB and WTX.
Extraordinary Item
- ------------------
During 1998, the Company paid off, before maturity, $4.4 billion of
high-cost FHLB of San Francisco advances and, as a result, incurred a $21
million pre-tax charge for the penalties associated with these prepayments.
These penalties are reflected as an extraordinary charge on the Consolidated
Statement of Net Earnings.
New Accounting Pronouncements
- -----------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), with amendments issued September
28, 2000. This Statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In June 1999,
the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133" (SFAS 137), which delayed the effective date of
SFAS 133 until fiscal years beginning after June 15, 2000. The Company adopted
SFAS 133 as of January 1, 2001 and recorded a loss of $10 million before tax, or
$6 million after tax. The Company does not currently intend to use hedge
accounting for the derivative financial instruments in portfolio on January 1,
2001.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS 140). This statement replaces issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
125). SFAS 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS 125's provisions without
reconsideration. This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. Because the Company retains 100% of the beneficial interests in its REMIC
securitizations, it does not have any effective "retained interests" requiring
disclosure under SFAS 140. The implementation of SFAS 140 is not expected to
have a significant impact on the Company's financial statements.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE B - Securities Available for Sale
The following is a summary of securities available for sale:
December 31, 2000
---------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -------------
U.S. Treasury and government agency obligations $ 4,458 $ 551 $ -0- $ 5,009
Collateralized mortgage obligations 796 -0- 41 755
Equity securities 5,530 381,547 -0- 387,077
------------ ------------ ------------ -------------
$ 10,784 $ 382,098 $ 41 $ 392,841
============ ============ ============ =============
December 31, 1999
---------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -------------
U.S. Treasury and government agency obligations $ 5,354 $ 990 $ -0- $ 6,344
Collateralized mortgage obligations 848 -0- 61 787
Equity securities 5,530 258,961 -0- 264,491
Certificate of deposit 4,998 -0- 2 4,996
Commercial paper 19,822 -0- 4 19,818
Medium-term notes 23,033 -0- 25 23,008
------------ ------------ ------------ -------------
$ 59,585 $ 259,951 $ 92 $ 319,444
============ ============ ============ =============
The weighted average portfolio yields on securities available for sale were
38.31% and 12.78% at December 31, 2000 and 1999, respectively. Principal
proceeds from the sales of securities from the securities available for sale
portfolio were $14 (2000), $1,269 (1999), and $94,846 (1998) and resulted in
realized gains of $4 (2000), $1,250 (1999), and $13,480 (1998) and realized
losses of $-0- (2000), $-0- (1999), and $7 (1998).
At December 31, 2000, the securities available for sale had maturities as
follows:
Amortized Fair
Maturity Cost Value
------------------------- ------------ ------------
No maturity $ 9,988 $ 392,086
2001 -0- -0-
2002 through 2005 -0- -0-
2006 through 2010 601 571
2011 and thereafter 195 184
------------ ------------
$ 10,784 392,841
============ ============
NOTE C - Other Investments
The following is a summary of other investments:
December 31, 2000
---------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -------------
Overnight Investments:
Federal funds $ 318,736 $ -0- $ -0- $ 318,736
Eurodollar time deposits 40,000 -0- -0- 40,000
Longer-Term Investments:
Collateralized mortgage obligations 9,819 -0- 238 9,581
------------ ------------ ------------ -------------
$ 368,555 $ -0- $ 238 $ 368,317
============ ============ ============ =============
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
December 31, 1999
---------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -------------
Overnight Investments:
Federal funds $ 88,510 $ -0- $ -0- $ 88,510
Eurodollar time deposits 197,000 -0- -0- 197,000
Longer-Term Investments:
Bank notes 25,000 -0- 109 24,891
Collateralized mortgage obligations 114,637 -0- 905 113,732
Medium-term notes 42,009 -0- 56 41,953
------------ ------------ ------------ -------------
$ 467,156 $ -0- $ 1,070 $ 466,086
============ ============ ============ =============
The weighted average portfolio yields on other investments were 6.21% and
5.00% at December 31, 2000 and 1999, respectively. There were no sales of other
investments during 2000, 1999, or 1998.
At December 31, 2000, the other investments portfolio had maturities as
follows:
Amortized Fair
Maturity Cost Value
------------------------- -------------- --------------
2001 $ 358,736 $ 358,736
2002 through 2005 2,892 2,851
2006 through 2010 3,201 3,160
2011 and thereafter 3,726 3,570
-------------- --------------
$ 368,555 $ 368,317
============== ==============
NOTE D - Purchased Mortgage-Backed Securities Available for Sale
Purchased mortgage-backed securities available for sale are summarized as
follows:
December 31, 2000
-------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- --------------
FNMA $ 30,195 $ 352 $ 122 $ 30,425
FHLMC 23,693 291 149 23,835
GNMA 15,240 452 21 15,671
Other 31 -0- 2 29
------------- ------------- ------------- --------------
$ 69,159 $ 1,095 $ 294 $ 69,960
============= ============= ============= ==============
December 31, 1999
-------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- --------------
FNMA $ 34,185 $ 596 $ 474 $ 34,307
FHLMC 24,651 400 71 24,980
GNMA 18,918 795 31 19,682
Other 42 -0- 2 40
------------- ------------- ------------- --------------
$ 77,796 $ 1,791 $ 578 $ 79,009
============= ============= ============= ==============
The weighted average portfolio yields on mortgage-backed securities
available for sale were 8.98% and 8.95% at December 31, 2000, and 1999,
respectively. There were no sales of securities from the mortgage-backed
securities available for sale portfolio in 2000, 1999, or 1998.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
At December 31, 2000, purchased mortgage-backed securities available for
sale had contractual maturities as follows:
Amortized Fair
Maturity Cost Value
--------------------- -------------- --------------
2001 through 2005 $ 327 $ 325
2006 through 2010 3,056 3,118
2011 and thereafter 65,776 66,517
-------------- --------------
$ 69,159 $ 69,960
============== ==============
NOTE E - Mortgage-Backed Securities Held to Maturity
Mortgage-backed securities held to maturity are summarized as follows:
December 31, 2000
-------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------- ------------- -------------
Purchased MBS held to maturity
--------------------------------------
FNMA $ 342,339 $ 3,291 $ 1,638 $ 343,992
FHLMC 21,397 1,543 -0- 22,940
GNMA 21,807 788 -0- 22,595
-------------- ------------- ------------- -------------
Subtotal 385,543 5,622 1,638 389,527
MBS with recourse held to maturity
--------------------------------------
FNMA 7,758,409 12,574 92,654 7,678,329
REMICs 10,366,578 11,348 50,868 10,327,058
-------------- ------------- ------------- -------------
Subtotal 18,124,987 23,922 143,522 18,005,387
-------------- ------------- ------------- -------------
Total $ 18,510,530 $ 29,544 $ 145,160 $ 18,394,914
============== ============= ============= =============
December 31, 1999
-------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------- ------------- -------------
Purchased MBS held to maturity
--------------------------------------
FNMA $ 380,291 $ 1,351 $ 10,542 $ 371,100
FHLMC 27,886 2,137 -0- 30,023
GNMA 26,534 1,350 -0- 27,884
-------------- ------------- ------------- -------------
Subtotal 434,711 4,838 10,542 429,007
MBS with recourse held to maturity
--------------------------------------
FNMA 3,910,416 -0- 51,320 3,859,096
REMICs 7,237,485 10,103 145,899 7,101,689
-------------- ------------- ------------- -------------
Subtotal 11,147,901 10,103 197,219 10,960,785
-------------- ------------- ------------- -------------
Total $ 11,582,612 $ 14,941 $ 207,761 $ 11,389,792
============== ============= ============= =============
The weighted average portfolio yields on mortgage-backed securities held to
maturity were 7.97% and 7.13% at December 31, 2000 and 1999, respectively. There
were no sales of securities from the mortgage-backed securities held to maturity
portfolio during 2000, 1999, or 1998.
At December 31, 2000, mortgage-backed securities held to maturity had
contractual maturities as follows:
Amortized Fair
Maturity Cost Value
--------------------------- -------------- --------------
2001 through 2005 $ 16 $ 17
2006 through 2010 215 219
2011 and thereafter 18,510,299 18,394,678
-------------- --------------
$18,510,530 $18,394,914
============== ==============
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE F - Loans Receivable
December 31
-------------------------------
2000 1999
-------------- ---------------
Loans collateralized primarily by first deeds of trust:
One- to four-family dwelling units $31,353,927 $26,041,066
Over four-family dwelling units 2,444,832 1,979,199
Commercial property 39,810 49,149
Land 347 612
-------------- ---------------
33,838,916 28,070,026
Loans on savings accounts 21,429 20,107
-------------- ---------------
33,860,345 28,090,133
Less:
Undisbursed loan funds 6,703 5,022
Unearned fees, (deferred costs), and discounts (145,709) (66,840)
Allowance for loan losses 236,708 232,134
-------------- ---------------
$33,762,643 $27,919,817
============== ===============
As of December 31, 2000, the Company had $550 million of second mortgages
outstanding. The balance of the second mortgages is included in the table above
in the one- to four-family dwelling units.
In addition to loans receivable and MBS with recourse held to maturity, the
Company services loans for others. At December 31, 2000 and 1999, the amount of
loans sold with servicing retained by the Company was $2,899,079 and $3,093,642,
respectively. At December 31, 2000 and 1999, the balance outstanding of loans
sold with recourse amounted to $1,915,672 and $2,055,987, respectively.
At December 31, 2000 and 1999, the Company had $128 million and $88
million, respectively, in loans held for sale, all of which are carried at the
lower of cost or market.
During 1997, the Company desecuritized $856 million of MBS with recourse
into adjustable rate mortgages which had a balance of $574 million at December
31, 2000. These adjustable rate mortgages were separately identified as "held to
maturity" and the Company reclassified them on January 1, 2001 as "held for
investment" as permitted under SFAS 133.
Capitalized mortgage servicing rights are included in "Other assets" on the
Consolidated Statement of Financial Condition. The following is a summary of
capitalized mortgage servicing rights:
Year Ended December 31
---------------------------
2000 1999
----------- -----------
Balance at January 1 $ 37,295 $ 28,635
New capitalized mortgage servicing rights from loan sales 3,407 20,556
Amortization of capitalized mortgage servicing rights (12,344) (11,896)
----------- -----------
Balance at December 31 $ 28,358 $ 37,295
=========== ===========
A summary of the changes in the allowance for loan losses is as follows:
Year Ended December 31
--------------------------------------------
2000 1999 1998
------------ ------------ -------------
Balance at January 1 $ 232,134 $ 244,466 $ 233,280
Provision for (recovery of) loan losses
charged to expense 9,195 (2,089) 11,260
Transfer of allowance to reserve for losses on loans
sold or securitized and retained (4,470) (12,043) -0-
Less loans charged off (623) -0- (1,387)
Recoveries 472 1,800 1,313
------------ ------------ -------------
Balance at December 31 $ 236,708 $ 232,134 $ 244,466
============ ============ =============
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
A summary of the changes in the reserve for losses on loans sold with
recourse or securitized and retained, included in "Other liabilities," is as
follows:
Year Ended December 31
-------------------------------------------
2000 1999 1998
------------ ------------ -------------
Balance at January 1 $ 15,572 $ 2,256 $ 886
Initial recourse liability recognized at time of sale 168 1,273 1,370
Net transfers from allowance for loan losses 4,470 12,043 -0-
------------ ------------ -------------
Balance at December 31 $ 20,210 $ 15,572 $ 2,256
============ ============ =============
The following is a summary of impaired loans:
December 31
-----------------------------
2000 1999
------------ ------------
Nonperforming loans $ 231,155 $ 225,409
Troubled debt restructured 1,933 10,542
Other impaired loans 22,974 60,177
------------ ------------
$ 256,062 $ 296,128
============ ============
The portion of the allowance for loan losses that was specifically provided
for impaired loans was $4,036 and $9,443 at December 31, 2000 and 1999,
respectively. The average recorded investment in total impaired loans was
$264,895 and $328,029 during 2000 and 1999, respectively. All amounts involving
impaired loans have been measured based upon the fair value of the related
collateral. The amount of interest income recognized during the years ended
December 31, 2000, 1999, and 1998 on the total of impaired loans at each yearend
was $11,187 (2000), $13,912 (1999), and $17,265 (1998).
NOTE G - Interest Earned But Uncollected
December 31
---------------------------------
2000 1999
-------------- --------------
Loans receivable $ 127,223 $ 89,629
Mortgage-backed securities 109,021 70,120
Interest rate swaps 3,210 3,911
Other 36,852 11,691
-------------- --------------
$ 276,306 $ 175,351
============== ==============
NOTE H - Premises and Equipment
December 31
-------------------------------
2000 1999
-------------- --------------
Land $ 75,420 $ 71,869
Building and leasehold improvements 221,406 199,997
Furniture, fixtures, and equipment 216,431 190,749
-------------- --------------
513,257 462,615
Accumulated depreciation and amortization 205,605 184,122
-------------- --------------
$ 307,652 $ 278,493
============== ==============
Depreciation and amortization, computed by the straight-line method for
financial statement purposes, are provided over the useful lives of the various
classes of premises and equipment.
The aggregate future rentals under long-term operating leases on land or
premises in effect on December 31, 2000, and which expire between 2001 and 2064,
amounted to approximately $175,456. The approximate minimum payments during the
five years ending 2005 are $20,836 (2001), $19,669 (2002), $17,616 (2003),
$14,866 (2004), and $13,306 (2005). Certain of the leases provide for options to
renew and for the payment of taxes, insurance, and maintenance costs. The rental
expense for the year amounted to $24,016 (2000), $22,233 (1999), and $20,350
(1998).
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE I - Deposits
December 31
--------------------------------------------------------
2000 1999
--------------------------- ---------------------------
Rate* Amount Rate* Amount
-------- -------------- --------- --------------
Deposits by rate:
Interest-bearing checking accounts 2.91% $ 74,598 3.06% $ 128,677
Interest-bearing checking accounts swept
into money market deposit accounts 3.33 3,059,928 3.50 3,206,240
Passbook accounts 1.53 451,228 1.77 484,132
Money market deposit accounts 4.21 3,534,786 4.32 5,869,963
Term certificate accounts with original
maturities of:
4 weeks to 1 year 6.19 12,325,768 5.11 8,554,573
1 to 2 years 6.06 7,275,219 4.99 5,947,712
2 to 3 years 5.76 1,367,147 5.26 1,349,180
3 to 4 years 5.80 453,974 5.29 368,540
4 years and over 5.99 675,120 5.58 582,275
Retail jumbo CDs 5.82 644,962 4.98 623,286
Wholesale CDs 6.61 185,000 5.82 600,000
All other 6.88 189 7.23 332
-------------- --------------
$30,047,919 $27,714,910
============== ==============
* Weighted average interest rate including the impact of interest rate swaps.
December 31
----------------------------------------------------
2000 1999
------------------------ ------------------------
Rate* Amount Rate* Amount
-------- ------------- ------- -------------
Deposits by remaining maturity
at yearend:
No contractual maturity 3.65% $ 7,120,540 3.91% $ 9,689,012
Maturity within one year 6.10 20,723,095 5.08 15,950,523
1 to 5 years 6.11 2,172,557 5.40 2,046,256
Over 5 years 5.40 31,727 4.99 29,119
------------- -------------
$ 30,047,919 $ 27,714,910
============= =============
* Weighted average interest rate including the impact of interest rate swaps.
At December 31, the weighted average cost of deposits was 5.52% (2000) and 4.69%
(1999).
Interest expense on deposits is summarized as follows:
Year Ended December 31
-------------------------------------------------
2000 1999 1998
-------------- --------------- --------------
Interest-bearing checking accounts $ 2,946 $ 2,433 $ 1,184
Interest-bearing checking accounts swept
into money market deposit accounts 109,492 108,577 70,403
Passbook accounts 8,837 11,761 14,027
Money market deposit accounts 201,265 267,775 186,742
Term certificate accounts 1,171,907 859,818 1,012,987
-------------- --------------- --------------
$ 1,494,447 $ 1,250,364 $ 1,285,343
============== =============== ==============
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE J - Advances from Federal Home Loan Banks
Advances are secured by pledges of $22,817,853 of certain loans and
MBS-REMIC principal, capital stock of the Federal Home Loan Banks, and other MBS
with a market value of $1,575,177. These borrowings have maturities and interest
rates as follows:
December 31, 2000
-----------------------------------------------------
Stated
Maturity Amount Rate
------------------ -------------- ----------
2001 $ 4,632,945 6.63%
2002 5,046,172 6.71
2003 6,816,453 6.63
2004 1,026,246 6.70
2005 1,521,235 6.54
2006 and thereafter 688,746 6.74
--------------
$ 19,731,797
==============
December 31, 1999
-----------------------------------------------------
Stated
Maturity Amount Rate
------------------ -------------- ----------
2000 $ 2,344,443 5.56%
2001 2,526,428 5.78
2002 740,419 6.09
2003 2,111,286 5.43
2004 21,600 6.58
2005 and thereafter 1,171,042 5.57
--------------
$ 8,915,218
==============
At December 31, the weighted average adjusted interest rate was 6.65%
(2000) and 5.64% (1999). These borrowings averaged $14,761,217 (2000) and
$6,943,505 (1999) and the maximum outstanding at any monthend was $19,731,797
(2000) and $8,915,218 (1999). Of the advances outstanding at December 31, 2000,
$18.0 billion were tied to a LIBOR index and were scheduled to reprice within 90
days.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE K - Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are collateralized by
mortgage-backed securities with a market value of $948,664 and $1,120,661 at
December 31, 2000 and 1999, respectively.
December 31, 2000
----------------------------------------------------
Stated
Maturity Amount Rate
------------------------ ------------- ---------
2001 $ 657,274 6.52%
2002 200,000 6.71
-------------
$ 857,274
=============
December 31, 1999
----------------------------------------------------
Stated
Maturity Amount Rate
------------------------ ------------- ---------
2000 $ 1,001,133 5.43%
2001 44,043 6.15
-------------
$ 1,045,176
=============
At December 31, these liabilities had a weighted average adjusted interest
rate of 6.56% (2000) and 5.46% (1999). These borrowings averaged $966,255 (2000)
and $909,329 (1999) and the weighted average interest rate on these averages was
5.99% for 2000 and 5.22% for 1999. The maximum outstanding at any monthend was
$1,160,536 (2000) and $1,291,128 (1999). At the end of 2000 and 1999, all of the
agreements to repurchase with brokers/dealers were to reacquire the same
securities.
NOTE L - Subordinated Notes
December 31
----------------------------
2000 1999
----------- -----------
Golden West Financial Corporation
subordinated notes, unsecured, due from
2002 to 2003, at coupon rates of 6.00%
to 8.375%, net of unamortized discount
of $1,209 (2000) and $2,050 (1999) $598,791 $812,950
=========== ===========
At December 31, subordinated notes had a weighted average interest rate of
7.17% (2000) and 7.63% (1999). At December 31, 2000, subordinated notes had
maturities and interest rates as follows:
Maturity Rate* Amount
---------------- ---------- --------------
2002 7.70% $ 399,281
2003 6.10 199,510
--------------
$ 598,791
==============
*Weighted average interest rate.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE M - Taxes on Income
The following is a comparative analysis of the provision for federal and
state taxes on income.
Year Ended December 31
-----------------------------------------------
2000 1999 1998
-------------- -------------- --------------
Federal income tax:
Current $ 218,874 $ 228,292 $ 225,271
Deferred 65,261 19,153 6,052
State tax:
Current 34,449 30,689 55,627
Deferred 13,571 4,616 5,127
-------------- -------------- --------------
$ 332,155 $ 282,750 $ 292,077
============== ============== ==============
The amounts of net deferred liability included in taxes on income in the
Consolidated Statement of Financial Condition are as follows:
December 31
------------------------------
2000 1999
-------------- --------------
Federal income tax $ 294,748 $ 185,043
State tax 72,105 53,882
The deferred tax liability results from changes in the amounts of temporary
differences during the year. The components of the net deferred tax liability
are as follows:
December 31
--------------------------------
2000 1999
------------ ------------
Deferred tax liabilities:
Loan fees and interest income $ 186,900 $ 118,987
Unrealized gains on debt and equity securities 150,176 103,254
FHLB stock dividends 120,550 101,675
Depreciation 17,187 16,435
Bad debt reserve 17,084 20,662
Other deferred tax liabilities 28 27
------------ ------------
Gross deferred tax liabilities 491,925 361,040
Deferred tax assets:
Provision for losses on loans 98,068 93,509
State taxes 14,946 16,626
Other deferred tax assets 12,058 11,980
------------ ------------
Gross deferred tax assets 125,072 122,115
------------ ------------
Net deferred tax liability $ 366,853 $ 238,925
============ ============
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
A reconciliation of income taxes at the federal statutory corporate rate to
the effective tax rate follows:
Year Ended December 31
------------------------------------------------------------------------------------
2000 1999 1998
-------------------------- -------------------------- --------------------------
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
----------- ----------- ----------- ----------- ----------- -----------
Computed standard
corporate tax expense $ 307,281 35.0% $ 266,955 35.0% $ 258,709 35.0%
Increases (reductions) in
taxes resulting from:
State tax, net of federal
income tax benefit 36,579 4.2 33,877 4.5 42,504 5.7
Net financial income, not
subject to income tax,
primarily related to
acquisitions (9,309) (1.1) (8,953) (1.2) (7,754) (1.0)
Other (2,396) (.3) (9,129) (1.2) (1,382) (.2)
----------- ----------- ----------- ----------- ----------- -----------
$ 332,155 37.8% $ 282,750 37.1% $ 292,077 39.5%
=========== =========== =========== =========== =========== ===========
In accordance with Financial Accounting Standards Board Pronouncement 109,
"Accounting for Income Taxes," a deferred tax liability has not been recognized
for the tax bad debt reserve of WSB that arose in tax years that began prior to
December 31, 1987. At December 31, 2000 and 1999, the portion of the tax bad
debt reserve attributable to pre-1988 tax years was approximately $252 million.
The amount of unrecognized deferred tax liability at December 31, 2000 and 1999,
was approximately $88 million. This deferred tax liability could be recognized
if certain distributions are made with respect to the stock of WSB, or the bad
debt reserve is used for any purpose other than absorbing bad debt losses.
NOTE N - Stockholders' Equity
The Company's Board of Directors, through four separate actions beginning
in 1993, authorized the purchase by the Company of up to 44.7 million shares of
Golden West's common stock. As of December 31, 2000, 42,897,148 of such shares
had been repurchased and retired at a cost of $915 million since October 28,
1993. During 2000, 3,673,300 of the shares were purchased and retired at a cost
of $109 million.
In November 1999, the Company's Board of Directors authorized a
three-for-one stock split of the outstanding common stock of the Company by
declaring a 200 percent stock dividend. The stock split became effective on
December 10, 1999. All references in the consolidated financial statements to
the number of shares of common stock, prices per share, earnings and dividends
per share, and other per share amounts have been restated to reflect the stock
split.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE O - Earnings Per Share
The Company calculates Basic Earnings Per Share (EPS) and Diluted EPS in
accordance with SFAS 128. Basic EPS is calculated by dividing net earnings for
the period by the weighted average common shares outstanding for that period.
Diluted EPS takes into account the effect of dilutive instruments, such as stock
options, but uses the average share price for the period in determining the
number of incremental shares that are to be added to the weighted average number
of shares outstanding.
The following is a summary of the calculation of basic and diluted EPS:
Year Ended December 31
------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
Earnings before extraordinary item $ 545,791 $ 479,979 $ 447,091
Extraordinary item -0- -0- (12,511)
-------------- -------------- --------------
Net earnings $ 545,791 $ 479,979 434,580
============== ============== ==============
Weighted average shares 158,559,273 165,767,526 171,731,268
Add: Options outstanding at yearend 6,271,425 5,650,829 5,086,890
Less: Shares assumed purchased back with
proceeds from the exercise of options 4,552,701 4,466,889 3,356,223
-------------- -------------- --------------
Diluted average shares outstanding 160,277,997 166,951,466 173,461,935
============== ============== ==============
Basic Earnings Per Share Calculation:
Basic earnings per share before
extraordinary item $ 3.44 $ 2.90 $ 2.60
Extraordinary item 0.00 0.00 (.07)
-------------- -------------- --------------
Basic earnings per share $ 3.44 $ 2.90 $ 2.53
============== ============== ==============
Diluted Earnings Per Share Calculation:
Diluted earnings per share before
extraordinary item $ 3.41 $ 2.87 $ 2.58
Extraordinary item 0.00 0.00 (.07)
-------------- -------------- --------------
Diluted earnings per share $ 3.41 $ 2.87 $ 2.51
============== ============== ==============
NOTE P - Stock Options
The Company's 1996 stock option plan authorizes the granting of options to
key employees to purchase up to 21 million shares of the Company's common stock.
The plan permits the issuance of either non-qualified stock options or
incentive stock options. Under terms of the plan, incentive stock options have
been granted at fair market value as of the date of grant and are exercisable
any time after two to five years and prior to ten years from the grant date.
Non-qualified options have been granted at fair market value as of the date of
grant and are exercisable after two to five years and prior to ten years and one
month from the grant date. At December 31, shares available to be granted under
options amounted to 4,002,650 (2000), 5,348,250 (1999), and 7,420,650 (1998).
Outstanding options at December 31, 2000, were held by 491 employees and had
expiration dates ranging from December 2, 2001, to December 18, 2010.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
The following table sets forth the range of exercise prices on outstanding
options at December 31, 2000:
Weighted Weighted
Average Average
Range of Number of Exercise Remaining
Exercise Price Options Price Contractual Life
- ------------------- -------------- ------------------ ------------------
$11.67 - $15.33 1,624,250 $ 13.03 2.9 years
$17.42 - $17.83 580,400 17.67 5.2 years
$27.60 - $30.83 2,845,525 29.89 8.5 years
$31.58 - $38.75 1,207,750 31.66 8.7 years
$47.94 - $57.75 13,500 53.40 9.1 years
--------------
6,271,425
==============
All of the options in the range from $11.67 to $17.83 are exercisable. Of
the options in the range from $27.60 to $30.83, 613,675 are exercisable. None of
the options in the range $31.58 to $57.75 are exercisable.
A summary of the transactions of the stock option plan follows:
Average
Exercise
Price per
Shares Share
------------- ------------
Outstanding, January 1, 1998 6,629,250 $ 10.20
Granted 863,550 27.62
Exercised (2,382,960) 7.44
Canceled (22,950) 27.60
------------- ------------
Outstanding, December 31, 1998 5,086,890 $ 14.37
Granted 2,177,850 31.27
Exercised (1,508,461) 8.44
Canceled (105,450) 30.37
------------- ------------
Outstanding, December 31, 1999 5,650,829 $ 22.17
Granted 1,375,150 30.59
Exercised (725,004) 15.21
Canceled (29,550) 30.25
------------- ------------
Outstanding, December 31, 2000 6,271,425 $ 24.78
============= ============
At December 31, options exercisable amounted to 2,818,325 (2000), 2,736,929
(1999), and 4,237,290 (1998).
The weighted-average fair value per share of options granted during 2000
was $8.88 per share, $9.93 per share for those granted during 1999, and $7.77
per share for those granted during 1998. For these disclosure purposes, the fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2000, 1999 and 1998, respectively; dividend yield
of 1.1% (2000) and 0.9% (1999 and 1998); expected volatility of 25% (2000), 23%
(1999) and 24% (1998); expected lives of 5.3 years for all years; and risk-free
interest rates of 4.97% (2000), 6.28% (1999) and 4.54% (1998).
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
The Company applies APB 25 and related interpretations in accounting for
its plan. Accordingly, no compensation cost has been recognized for the plan.
Had compensation cost for the plan been determined based on the fair value at
the grant dates for awards under the plan consistent with the method prescribed
by SFAS 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
Year Ended December 31
-----------------------------------------
2000 1999 1998
------------ ----------- -----------
Net income
As reported $ 545,791 $ 479,979 $ 434,580
Pro forma 539,802 477,235 432,661
Basic earnings per share
As reported $ 3.44 $ 2.90 $ 2.53
Pro forma 3.40 2.88 2.52
Diluted earning per share
As reported $ 3.41 $ 2.87 $ 2.51
Pro forma 3.37 2.86 2.49
NOTE Q - Financial Instruments with Off-Balance-Sheet Risk and Concentrations of
Credit Risk
As of December 31, 2000, the balance of the Company's loans receivable and
MBS with recourse held to maturity was $52 billion. Of that $52 billion balance,
32% were Northern California loans, 31% were Southern California loans, 5% were
Florida loans, 4% were Texas loans, 4% were New Jersey loans, 3% were Washington
loans, 3% were Illinois loans, 3% were Colorado loans, 2% were Arizona loans and
2% were Pennsylvania loans. No other single state made up more than 2% of the
total loan portfolio. The majority of these loans are secured by first deeds of
trust on one- to four-family residential property. Economic conditions and real
estate values in the states in which the Company lends are the key factors that
affect the credit risk of the Company's loan portfolio.
In order to reduce its exposure to fluctuations in interest rates, the
Company is a party to financial instruments with off-balance-sheet risk entered
into in the normal course of business. These financial instruments include
commitments to fund loans; commitments to purchase or sell securities,
mortgage-backed securities, and loans; and interest rate swaps. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated statement of
financial condition. The contract or notional amounts of these instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments. To limit credit exposure, among other things, the Company
enters into financial instrument contracts only with the Federal Home Loan Bank
of San Francisco and with major banks and securities dealers selected by the
Company upon the basis of their creditworthiness and other matters. The Company
initially has not required collateral or other security to support these
financial instruments because of the creditworthiness of the counterparties.
Commitments to originate mortgage loans are agreements to lend to a
customer providing that the customer satisfies the terms of the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Prior to entering each commitment, the Company
evaluates the customer's creditworthiness. The amount of outstanding loan
commitments at December 31, 2000 and 1999, was $596 million and $594 million,
respectively. Most of these commitments were for adjustable rate mortgages.
The Company enters into commitments to purchase or sell mortgage-backed
securities and other mortgage derivative products. The commitments generally
have a fixed delivery or receipt settlement date. The Company controls the
credit risk of such commitments through credit evaluations, limits, and
monitoring procedures. The interest rate risk of the commitment is considered by
the Company and may be matched with the appropriate funding sources. The Company
had no significant outstanding commitments to purchase or sell mortgage-backed
securities as of December 31, 2000 or 1999.
Interest rate swaps are utilized to limit the Company's sensitivity to
interest rate changes. The Company is exposed to credit risk in the event of
nonperformance by the other parties to the interest rate swap agreements.
However, the Company does not anticipate nonperformance by the other parties.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE R - Interest Rate Swaps
The Company has entered into interest rate swap agreements with selected
banks and government security dealers to reduce its exposure to fluctuations in
interest rates. The possible inability of counterparties to satisfy the terms of
these contracts exposes the Company to credit risk to the extent of the net
difference between the calculated pay and receive amounts on each transaction.
Net differences of that amount are generally settled quarterly. The Company has
not experienced any credit losses from interest rate swaps.
The information presented below is based on interest rates at December 31,
2000. To the extent that rates change, variable interest rate information will
change.
The following table illustrates the maturities and weighted average rates
as of December 31, 2000 for interest rate swaps held by the Company by product
type.
Maturities of Interest Rate Swaps at December 31, 2000
- ---------------------------------------------------------------------------------------------------------
Maturity
-------------------------------------------------- Balance at
2001 2002 2003 2004 December 31, 2000
------------ ----------- ----------- ----------- -----------------
Receive fixed generic swaps:
Notional amount $ 114,401 $ 11,500 $ 91,300 $ -0- $ 217,201
Weighted average receive rate 6.35% 6.52% 6.39% 0.00% 6.37%
Weighted average pay rate 6.77% 6.67% 6.86% 0.00% 6.80%
Pay fixed generic swaps:
Notional amount $ 96,495 $ 305,000 $ 212,000 $ 103,600 $ 717,095
Weighted average receive rate 6.83% 6.76% 6.80% 6.78% 6.78%
Weighted average pay rate 8.13% 7.54% 6.26% 6.65% 7.11%
---------- ----------- ----------- ----------- ------------
Total notional value $ 210,896 $ 316,500 $ 303,300 $ 103,600 $ 934,296
========== =========== =========== =========== ============
Total weighted average rate on swaps:
Receive rate 6.57% 6.75% 6.68% 6.78% 6.69%
========== =========== =========== =========== ============
Pay rate 7.39% 7.51% 6.44% 6.65% 7.04%
========== =========== =========== =========== ============
During 2000, the range of floating interest rates received on swap
contracts was 5.68% to 7.11% and the range of floating interest rates paid on
swap contracts was 6.00% to 6.87%. The range of fixed interest rates received on
swap contracts was 5.50% to 7.06% and the range of fixed interest rates paid on
swap contracts was 5.58% to 8.85%.
Activity in interest rate swaps is summarized as follows:
Interest Rate Swap Activity
For the years ended December 31, 2000, 1999, and 1998
(Notional amounts in millions)
Receive Pay
Fixed Fixed
Swaps Swaps
------------ ------------
Balance, January 1, 1998 $ 1,679 $ 1,108
Maturities (1,167) (209)
------------ ------------
Balance, December 31, 1998 512 899
Additions 80 -0-
Maturities (329) (172)
------------ ------------
Balance, December 31, 1999 263 727
Maturities (46) (10)
------------ ------------
Balance, December 31, 2000 $ 217 $ 717
============ ============
Interest rate swap activity decreased net interest income by $4 million,
$11 million, and $9 million for the years ended December 31, 2000, 1999, and
1998, respectively.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE S - Disclosure About Fair Value of Financial Instruments
The Financial Accounting Standards Board Pronouncement No. 107,
"Disclosures About Fair Value of Financial Instruments," requires disclosure of
the fair value of financial instruments for which it is practicable to estimate
that value. The statement provides for a variety of different valuation methods,
levels of aggregation, and assessments of practicability of estimating fair
value.
Fair value estimates are not necessarily more relevant than historical cost
values. Fair values may have limited usefulness in evaluating portfolios of
long-term financial instrument assets and liabilities held by going concerns.
Moreover, there are significant inherent weaknesses in any estimating techniques
employed. Differences in the alternative methods and assumptions selected by
various companies as well as differences in the methodology utilized between
years may, and probably will, significantly limit comparability and usefulness
of the data displayed. For these reasons, as well as others, management believes
that the disclosure presented herein has limited relevance to the Company and
its operations.
The values presented are based upon information as of December 31, 2000
and 1999, and do not reflect any subsequent changes in fair value. Fair values
may have changed significantly following the balance sheet dates. The estimates
presented herein are not necessarily indicative of amounts that could be
realized in a current transaction.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
The historical cost amounts approximate the fair value of the following
financial instruments: cash, interest earned but uncollected,
investment in capital stock of Federal Home Loan Banks, other overnight
investments, demand deposits, and securities sold under agreements to
repurchase with brokers/dealers due within 90 days.
Fair values are based on quoted market prices for securities available
for sale, other long-term investments, mortgage-backed securities
available for sale, mortgage-backed securities held to maturity,
securities sold under agreements to repurchase with brokers/dealers
with terms greater than 90 days, and subordinated notes.
Fair values are estimated using projected cash flows present valued at
replacement rates currently offered for instruments of similar
remaining maturities for: term deposits, advances from Federal Home
Loan Banks, and consumer repurchase agreements.
For loans receivable and loan commitments, the fair value is estimated
by present valuing projected future cash flows, using current rates at
which similar loans would be made to borrowers and with assumed rates
of prepayment. Adjustment for credit risk is estimated based upon the
classification status of the loans.
For mortgage servicing rights, the fair value is estimated using a
discounted cash flow analysis based on the Company's estimated annual
cost of servicing, market prepayment rates, and market discount rates.
The fair value of interest rate swap agreements is the estimated amount
the Company would receive or pay to terminate the swap agreements on
the reporting date, considering current interest rates.
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
The table below discloses the carrying value and the fair value of Golden
West's financial instruments as of December 31.
December 31
----------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------------- -------------- -------------- --------------
Financial Assets:
Cash $ 350,430 $ 350,430 $ 333,793 $ 333,793
Securities available for sale 392,841 392,841 319,444 319,444
Other investments 368,555 368,317 467,156 466,086
Mortgage-backed securities available for sale 69,960 69,960 79,009 79,009
Mortgage-backed securities held to maturity 18,510,530 18,394,914 11,582,612 11,389,792
Loans receivable 33,762,643 33,830,104 27,919,817 27,877,258
Interest earned but uncollected 276,306 276,306 175,351 175,351
Investment in capital stock of Federal Home
Loan Banks 1,067,800 1,067,800 541,013 541,013
Capitalized mortgage servicing rights 28,358 58,162 37,295 56,785
Financial Liabilities:
Deposits 30,047,919 30,158,096 27,714,910 27,762,116
Advances from Federal Home Loan Banks 19,731,797 19,897,503 8,915,218 8,878,027
Securities sold under agreements to
repurchase 857,274 857,430 1,045,176 1,042,395
Subordinated notes 598,791 601,094 812,950 812,545
Off-Balance Sheet Instruments (based on estimated fair value at December 31):
-----------------------------------------------------------------------------------------
December 31
-----------------------------------------------------------------------------------------
2000 1999
------------------------------------------- -------------------------------------------
Net Net
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gain (Loss) Gains Losses Gain (Loss)
------------ ------------ ------------- ------------ ------------ -------------
Interest rate swaps:
Receive fixed $ 1,156 $ 28 $ 1,128 $ 70 $ 2,106 $ (2,036)
Pay fixed 174 11,205 (11,031) 7,039 6,880 159
Loan commitments 7,552 -0- 7,552 5,962 -0- 5,962
------------ ------------ ------------- ------------ ------------ -------------
Total $ 8,882 $ 11,233 $ (2,351) $ 13,071 $ 8,986 $ 4,085
============ ============ ============= ============ ============ =============
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE T - Parent Company Financial Information
Statement of Net Earnings
- -------------------------
Year Ended December 31
--------------------------------------------
2000 1999 1998
------------ ------------ -------------
Revenues:
Investment income $ 31,306 $ 42,580 $ 71,480
Insurance commissions 1,389 1,453 1,298
Other -0- -0- 5
------------ ------------ -------------
32,695 44,033 72,783
Expenses:
Interest 54,119 60,358 69,549
General and administrative 4,617 4,338 3,826
------------ ------------ -------------
58,736 64,696 73,375
------------ ------------ -------------
Loss before earnings of subsidiaries
and income tax credit (26,041) (20,663) (592)
Income tax credit 10,140 8,091 1,122
Earnings of subsidiaries before
extraordinary item 561,692 492,551 446,561
------------ ------------ -------------
Earnings before Extraordinary Item 545,791 479,979 447,091
Extraordinary item -0- -0- (12,511)
------------ ------------ -------------
Net Earnings $ 545,791 $ 479,979 $ 434,580
============ ============ =============
Statement of Financial Condition
- --------------------------------
Assets
------
December 31
--------------------------------
2000 1999
-------------- --------------
Cash $ 4,255 $ 6,675
Securities available for sale 3,246 3,651
Overnight note receivable from subsidiary 279,012 3,962
Other investments 97 147,095
Notes receivable from subsidiary -0- 600,000
Subordinated note receivable from subsidiary 100,000 -0-
Other assets 20,014 22,711
Investment in subsidiaries 3,894,618 3,242,576
--------------- --------------
$ 4,301,242 $ 4,026,670
=============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Other liabilities $ 15,164 $ 18,866
Subordinated notes, net 598,791 812,950
Stockholders' equity 3,687,287 3,194,854
-------------- --------------
$ 4,301,242 $ 4,026,670
============== ==============
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE T- Parent Company Financial Information (Continued)
Statement of Cash Flows
- -----------------------
Year Ended December 31
------------------------------------------
2000 1999 1998
------------- ------------ ------------
Cash flows from operating activities:
Net earnings $ 545,791 $ 479,979 $ 434,580
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Earnings of subsidiaries before extraordinary item (561,692) (492,551) (446,561)
Extraordinary item -0- -0- 21,152
Amortization of discount on subordinated notes 841 1,015 1,144
Other, net 4,114 10,388 (6,618)
------------- ------------ ------------
Net cash provided by (used in) operating activities (10,946) (1,169) 3,697
Cash flows from investing activities:
Loans purchased from subsidiary -0- -0- (317,520)
Capital contributed to subsidiaries (20,000) (117) (171,007)
Dividends received from subsidiaries 4,746 228,267 731,215
Purchases of securities available for sale (44) (17) (15)
Sales of securities available for sale -0- -0- 73,648
Matured securities available for sale 31 1 -0-
Decrease (increase) in overnight notes receivable
from subsidiary (275,050) 69,015 3,169
Decrease (increase) in other investments 146,998 (147,005) 179,997
Issuances of notes receivable from subsidiary -0- (600,000) (200,000)
Issuance of subordinated note receivable
from subsidiary (100,000) -0- -0-
Repayments of notes receivable from subsidiary 600,000 800,000 -0-
------------- ------------ ------------
Net cash provided by investing activities 356,681 350,144 299,487
Cash flows from financing activities:
Repayment of subordinated notes (215,000) -0- (200,000)
Dividends on common stock (34,882) (31,903) (29,488)
Exercise of stock options 11,024 12,725 17,738
Purchase and retirement of Company stock (109,297) (345,059) (80,323)
------------- ------------ ------------
Net cash used in financing activities (348,155) (364,237) (292,073)
Net increase (decrease) in cash (2,420) (15,262) 11,111
Cash at beginning of period 6,675 21,937 10,826
------------- ------------ ------------
Cash at end of period $ 4,255 $ 6,675 $ 21,937
============= ============ ============
Supplemental cash flow information:
Loans contributed to subsidiary $ -0- $ -0- $ 317,520
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2000, 1999, and 1998
(Dollars in thousands except per share figures)
NOTE U - Selected Quarterly Financial Data (Unaudited)
2000
----------------------------------------------------------------
Quarter Ended
----------------------------------------------------------------
March 31 June 30 September 30 December 31
--------------- ------------- --------------- --------------
Interest income $ 792,554 $ 892,392 $ 1,014,434 $ 1,097,160
Interest expense 522,923 611,865 726,522 784,062
--------------- ------------- --------------- --------------
Net interest income 269,631 280,527 287,912 313,098
Provision for loan losses 969 3,842 1,106 3,278
Noninterest income 33,491 39,925 41,376 46,028
Noninterest expense 99,960 102,387 107,136 115,364
--------------- ------------- --------------- --------------
Earnings before taxes on income 202,193 214,223 221,046 240,484
Taxes on income 76,259 80,961 83,643 91,292
--------------- ------------- --------------- --------------
Net earnings $ 125,934 $ 133,262 $ 137,403 $ 149,192
=============== ============= =============== ==============
Basic earnings per share $ .79 $ .84 $ .87 $ .94
=============== ============= =============== ==============
Diluted earnings per share $ .78 $ .84 $ .86 $ .93
=============== ============= =============== ==============
Cash dividends per share $ .0525 $ .0525 $ .0525 $ .0625
=============== ============= =============== ==============
1999
----------------------------------------------------------------
Quarter Ended
----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------- -------------- -------------- --------------
Interest income $ 694,961 $ 685,298 $ 702,253 $ 743,333
Interest expense 444,260 436,792 450,289 491,019
-------------- -------------- -------------- --------------
Net interest income 250,701 248,506 251,964 252,314
Provision for (recovery of) loan losses 574 (727) (1,253) (683)
Noninterest income 35,299 42,548 31,438 34,017
Noninterest expense 93,046 96,026 96,047 101,028
-------------- -------------- -------------- --------------
Earnings before taxes on income 192,380 195,755 188,608 185,986
Taxes on income 72,012 73,368 70,537 66,833
-------------- -------------- -------------- --------------
Net earnings $ 120,368 $ 122,387 $ 118,071 $ 119,153
============== ============== ============== ==============
Basic earnings per share $ .71 $ .73 $ .72 $ .74
============== ============== ============== ==============
Diluted earnings per share $ .70 $ .72 $ .71 $ .73
============== ============== ============== ==============
Cash dividends per share $ .0467 $ .0467 $ .0467 $ .0525
============== ============== ============== ==============